Teenage is an age where everyone belonging to this category is busy in their schools, lifestyles, friends, gadgets, and all such things. But has anyone thought about investing at this age? Barely a few would, but if you haven’t, you definitely must think about it. Investing at this early age can promise you a better life as an adult as you would have a good amount of funds in hand.
How old do you have to be to start trading?
To start trading and become a young investor, you need to be at least 18 years old because only adults can open brokerage accounts. Eighteen years old is when a person is legally classified as “an adult” and can enter into brokerage contracts legally.
What’s the best age to start investing?
The best age to start trading is the early twenties, when young adults can learn to invest with small amounts, start reading about investing, to create first long-term positions in preferred stocks or ETFs.
Can I invest in stocks at 16?
No, because you need to be 18 years old because only a person above 18 is legally classified as “an adult” and can enter into brokerage contracts legally. However, some brokers will allow custodian accounts for teens where an adult person (parent or guardian) will make payments, control accounts, and initiate the trades every time.
Can I trade forex at 17?
No, you can not trade forex at 17 because you need to be at least 18 years old and legally classified as “an adult” to open a brokerage account. Usually, there are no custodian accounts in the forex CFD market, and only persons from 18 years old can trade.
Forex trading under 18 is possible in the US only if the broker offers custodian accounts where the parent or guardian makes payments, controls accounts, and initiates the trades every time. Teens can use and learn using a custodian account but with solid control of a guardian.
How old do you have to be to buy stocks?
It would help if you were at least 18 years old to be able to trade stocks. In the US, you can open a custodian brokerage account where a guardian controls your trading account. However, the best way is to use demo accounts or paper trading before becoming an adult.
To qualify for stock trading, one must be at least 18 years old. There are a lot of applications out there to help you out with investing as a beginner, but you still need to be or cross the age bar to start with those. The investment industry has established the rule, and sadly, there is no other solution to surpass it.
There might be an indirect legal way, though, and here’s an example of it. A North Carolina High School student, Sudarshan Sridharan, made an exception by investing in stocks as a high school student. In 2016, he invested in Tesla’s stocks and had a massive gain of $17,000. Similarly, he had an increase of $5,600 on Netflix and $14,600 on Google. But how did he do all of this as a teenager below 18?
He opened an account with his father, which is known as a ‘custodial account,’ and began investing with it. Once you have such an account in your hand, you’ll be able to support under the supervision of an adult, and once you’re 18 or 21, depending on the laws of your state, the account will be named primarily under your name. Therefore if you’re wondering can I invest in stocks at 16, yes, you can with this method!
How old do you have to be to use Robinhood?
To use the Robinhood trading platform you need to be at least 18 years old, and to have a valid social security number (not a Taxpayer Identification Number).
What about custodial accounts? How do these work?
As for this account, an adult, usually either of your parents or guardian, is meant to be opening it for you and adding funds as a gift. Last verified in 2020, they can deposit up to $15,000 in a custodial account. The funds once displayed in your account grant you access to investing, but still, it will be the adult who will initiate the trades every time. There won’t be any control on the account regarding funding, and you cannot directly contact the broker.
But, the decision regarding what to invest in and what not is still in your own hands. You are free to allocate the shares on your portfolio and justify the asset classes and opt for specific investments. As you qualify for the age bar, the account will be renamed along with the complete authority.
How to open a custodial account on Robinhood?
You can not open a custodial account on Robinhood because Robinhood does not offer custodial accounts. If you want to open a savings or investment account that an adult can open for a minor, you can use the company TD Ameritrade that offers UTMA/UGMA custodial accounts.
What Custodial Accounts are the best?
Without a doubt, there are a lot of custodial accounts present out there, and only a few of them have the best facilities. Here are the features of three platforms, namely Ameritrade, E*Trade, and Charles Schwab.
User rating: All user ratings are based out of 10, and Ameritrade has a score of 9, and the same is with Charles Schwab. However, E*Trade truly shines out at 9.5.
Desired Investment at a minimum: Neither of these has a desired minimum investment and can be operated with $0.
Trading in stocks: Same is the case of trading stocks; you are not charged anything per trade.
Trading in options: Ameritrade charges $0.65 per contract, and so does Charles Schwab. E*Trade also has similar charges, but they’ve specified it as $0/trade+$0.65/contract.
Mutual funds: You can trade in mutual funds with all three.
Virtual trading: Virtual trading facility is available with Ameritrade and E*Trade; Charles Schwab doesn’t have such a feature.
How to invest as a teenager?
- Begin with stocks:
Stocks are no scientific format that will take up a lot of your brain but is more straightforward. Conducting detailed research is the only way you get to learn more about it.
Go for a company that enlightens your trading spirit, but remember that as much as it would be great to say that you own stocks of Walt Disney and McDonald’s, these are the ones that will only provide you a sturdy return. Likewise, going for companies such as Target and Coca-Cola has provided increased dividends over time.
- Opt for mutual funds with low cost:
Mutual funds are a cumulative of different stocks together, and with this Investment, you don’t have to rely on just a single stock. Unlike a single stock, this divides your risk level, and such funds provide exposure and experience in different markets. In addition, many of such funds are provided by brokers themselves, and there is no commission involved in the same.
- Have a high-yield savings account:
If you’re wondering how to invest at age 15, this might be a perfect option for you. Parents are often not convinced to provide a custodial account to their children. Hence you could always ask them for a high yield savings account. Though the returns won’t be as fancy as the stock market, it is a safer way that helps to earn money constantly with greater compound interest.
Try taking these from online banks since, with their lowered cost involved in maintenance, they’re able to offer over 20 times higher interest rates.
- Consider a micro-savings app:
With a checking account in hand, linking it with an app like this would be the best decision you make. The change received from the purchases made via debit cards can be invested, beginning with tiny returns. There are several apps out there for teens with no minimum amount involved.
- Opting for the correct custodial IRA plan
How to invest in stocks under 18?
The best way to invest in stocks under 18 is investing in large-cap stocks in small amounts in long-term periods. Safe investing is the best way of investing for young people.
Custodial Traditional IRAs
As a teenager, it’s tough to decide whether you want to trade for a lifetime or just temporarily, but if you’re planning to do it for longer spans, then have a retirement account for yourself. These accounts are referred to as an IRA, and it’s yet an unknown fact that these are available to teenagers. You get compound interest via these accounts, and your money accumulates in due time.
Let’s take a monetary example:
For instance, you’ve deposited $6,000 at the ages of 15,16, 17; this will sum up to $18,000 in the account. Now, you don’t invest ahead; what happens then?
For the next 50 years, with an average interest rate of 8%, you will have approximately $800,000 in your hand at the age of 67.
The earnings-based on IRA sum up at a tax-deferred basis. In addition, there are some benefits; if you wish to buy a home, you’re free to make a penalty-free withdrawal.
Custodial Roth IRAs
Setting up a custodial IRA is an easy task for a teenager, and it works similarly to the traditional option. Annual contributions are permitted for up to $5,500. The only point is that the deposits here aren’t tax-deductible. After five years, it can benefit you as a teenager; you can withdraw anytime while being free from the regular income tax and an early withdrawal penalty of around 10%.
Companies offering traditional IRAs also offer Custodial Roth ones, and you could have your hands on either considering your requirements.
Custodial IRAs and Legal Age
Initially, being under 18, the account will have to be opened by an adult and then transferred to your name as you get older. However, the report can be started as early as 14, and it is one of the smart investments for 18-year-olds. It is a significant step that helps you advance all your friends who have no idea of investing, and you are a person with knowledge and experience.
In Conclusion: Begin as soon as possible, but do remember the taxes involved!
They say the right age to invest in stocks is 18 years, but when someone asks can you invest in stocks at 16, always answer yes. There might not be an immediate solution, but an indirect solution is always present. Begin with a small portfolio, take advice from your parents, but initiate. You have no idea how beneficial it is to invest as a teenager into anything.
But, with that being said, consider the taxes as well. Any custodial account, IRA account, or savings account isn’t exempted from taxes; though a lower percentage is implied, it’s still existing. So the first $1,050 of the investment income is free from taxes, the next $1,050 has a tax indicated of 10%, and if the income exceeds $2,100, then the tax can be as high as 37%, which is similar to adults, which is often referred to as the kiddie tax.
With this, we conclude the article! So, if you’re wondering how to invest in the stock market as a teenager, check out this content for every detail.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
