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  • Writer's pictureMichael DiBartolomeo

How Old Do You Have To Be To Invest In Stocks?

Updated: Feb 24, 2022

Everyone has to start investing somewhere. It all depends on where to put the money. As the saying goes, a dollar not spent is a dollar earned. Personal finance isn't just an ability for adults - even young children learn how to do it themselves. Early childhood examples showcase this mentality.

Consider a parent giving their kid a few dollars. Should the kid run to the candy store and buy themselves a chocolate bar? Instead, they can take the traditional approach investors usually do - they can save their money into their savings. Once the time is right, the kid can use their money. In the meantime, they always have those few dollars on hand.

In financial terms, anyone of any age can try their hand in investments. There are several ways one can make money. One of the oldest methods in the American market is standard brokerage. To build a better profile for personal finance, it's a good idea to start early. However, there are restrictions in place to prevent a minor from investing without proper guidance.

Can minors start investing before they are old enough to? What is the minimum age for investments to take place? How does one save and invest their money? All these questions have answers, which this article covers in great detail. Find out how brokerage accounts can be used even at a young age.

About brokerage accounts

What Is A Brokerage Account?

A brokerage account refers to a middleman for financial transactions between a buyer and seller. To buy and sell stocks online, there needs to be involvement with a stockbroker. Under a brokerage account, one can save and invest their money into a company, sometimes companies will even give employees stock grants to get them started.

They can also perform trading with various stocks in their accounts. Investing in stocks requires time, money, and patience; be prepared with a brokerage account.

Even adults can have trouble with an investment account. They want to invest is understandable, but every client needs a company for financial support. Parents and children can both learn how to start investing with their account. A brokerage account provides them the middleman to buy and sell stock easier. It can be an unpredictable process otherwise.

Before children buy or sell any stock, they need to know what are the lawful obligations when they open an account. After all, there is a legal age for money investment in the market.

Can One Invest If The Investor Is Under 18?

Parents may ask this important question - how old do you have to be to invest in stocks? In the United States, there are specific guidelines that every investor must follow. Can you invest in stocks at 16? Can you invest in stocks at 14? Can I invest at 13? Can you invest if you're under 17? These are all common questions.

The NASDAQ reports the minimum age of any investment must be either 18 or 21, depending on state laws. A standard brokerage investment requires knowledge and expertise in stocks. There is also technical information that may prove difficult to understand at such a young age.

Such a restrictive age limit is also important. Now future traders are old enough to understand their financial responsibilities, such as investment risk and long-term fees. They are no longer minors but now technically adults, with legally obligated contracts for their investment funds.

However, a potential investor doesn't have to be 18 years old to be involved in their investments. Parents can allow their children to start investing well before they reach the legal age. Minors can get started with trading online due to certain laws in place. Thanks to the Minors Act of 1956, it is entirely possible for children to set up an account and buy stocks.

How The Minors Act Affects A Child Investor

The Uniform Gifts to Minors Act was made in 1956, although it was revised a decade later. Also known as the UGMA, it allows an adult to transfer their assets directly to underage beneficiaries. Instead of a formal trust which takes up time, a minor can receive benefits from their family brokerage account. As a result, they can start investing at an early age.

Custodial Accounts

A custodial account allows a legal guardian to administer investments for their children. While a minor can run the account, their parents are in full control. Once these children become 18-years old, ownership transfers to them directly. The fund is entirely theirs, without any hassle or fees. Until then, every investment is made through these accounts, under parental guidance.

The main purpose of custodial accounts is to teach children how to get started with investing stocks. They need to learn how the stock market works since it can be a tricky process. The minimum requirements of online investments include persistence and patience, which children need to learn early on. Short attention spans can get in the way of investing, so use this as a learning experience.

Such a brokerage account allows teamwork to take place, especially with trading companies and brokers. Children get to understand why investors work together to maximize profits. Shared accounts also deal with mutual funds, which are pooled money from shared investors.

Children not only invest in stock with their family but also other people. It's an entire market built on investing trust and confidence. There are restrictions in place, so children cannot just decide which stock to invest in without permission. Parental control is a safeguard to online investment. In a way, they act as a personal broker for their children.

Within a specified amount, the account offers a tax-free stock investment. UGMA provides several key advantages for minor investors. Below are the most important ones to consider:

  • Commission-free investments

  • Lower tax rates for the account

  • Full asset control with the funds

Tax Benefits

These accounts offer incentives to jump in the stock market. With the right direction, investment trading is a manageable experience for children. Leftover money can also add up to their funds, which greatly assists families who need to pay fees. If the child's age limit is under the minimum requirements, they can receive these financial benefits to their investment account:

  • Tax-free earnings up to $1,050

  • Considerably low children taxation rates

  • $2,100 earnings taxed at a parental rate

Financial Aid

Keep in mind since the account is under the child's name, both UGMA and UTMA investments can take potential hits. Federal aid requires students to make contributions of at least 35% of costs. However, most parental assets only account for less than 6% so be aware. Eligibility for federal aid can see a reduction of up to 20-25% alone.

Make sure to save money for college expenses in the future. A stock investment account is a great way for children to manage their funds, but they must remain vigilant of potential risk. At a minimum, there is always a risk, so it's better to play it safe than be sorry. Make sure you know how student loans affect your credit score before applying for one as well.

How Does One Setup A Custodial Account?

To get started with trade investing, an adult must open an account for their kids. It requires basic information about the children, such as a full name, date of birth, and social security number. Afterward, the brokerage account is under the full control of the adults. These activities include withdrawals and deposits into the account, as well as payments for certain fees.

Brokerage accounts can be a learning tool for children, especially when it comes to investing in stocks. With broker guidance from trade companies, they can run their account with a strategic mindset. A trading account isn't too difficult to set up, so families can start investing in no time. They just need to figure out what stocks to buy with their account.

Should A Child Invest Early In Their Lifetime?

Investing is a lifetime commitment, so begin as soon as possible. Trading takes time to get used to, especially with a volatile market. Potential traders need the experience so they can grow. Like with anything else in life, a specific trade requires years of dedication to master. If children make mistakes with low investment, they can figure out what went wrong. It's better to do so at this stage in life, rather than later. Otherwise, they can end up unable to pay expensive fees.

What's A Good Age To Start?

Parents could allow their children to start as early as eight. They need plenty of time to grow within their trading experiences, given they have a decade before they become adults. With parental assistance to guide their accounts, children can make a few mistakes that would otherwise be costly fees later on in life. Make sure there is a broker who can also help.

Fundamental basics of a stock

Fundamental Basics Of A Stock

Before anyone wants to buy a stock, they should learn the fundamentals of successful trading. First, there is cash flow. When a trading company gives away or receives cash, creditors refer to this as flow. Families need to make sure they have a positive net worth at the end of every month.

There is also a return on assets, which is a calculation based on net income and total assets a family owns. It indicates whether or not there is a profit made with the account. Fees are also taken into account, which can subtract the total profit made within the month. Every transaction results in small broker fees by the end.

Finally, traders should keep track of fluctuating stock prices. These change over time, depending on several factors like supply and demand. High demand always results in better shares due to these favorable outcomes. Only sell if there is a reasonable belief the stock cannot go any higher. Sometimes unlikely changes in popularity can show up out of nowhere. If a company receives an unusual amount of attention, it's better to sell before the price gets lower.

Buy Stocks Through A Company

First and foremost, one should consider the type of companies they want to deal with. For example, sports-based stock can involve everything from brands to businesses. Do the research and begin trading with a relatable corporation.

Children can try investing with a brand they identify with. Going back to the sports example, they can choose a company based on a team they like. It's a good way for them to get emotionally invested, not to mention having fun.

Stocks can be bought either with individual ones or mutual. Single variations carry unsystematic risk, so it's better to stick with mutual ones instead. It also allows better diversification for finance portfolios. A multitude of various stocks is a good way to go.

Financial Advice To Build Long-Term Savings

When children set up their account, they should start with a strategic approach. They should always set aside extra cash, which teaches them frugality. Later on in life, they can understand the importance of having cash on hand.

To get them invested, tell it to them in simple easy-to-understand stories. Children understand stories, so give them advice in this manner. Be creative with investment narratives and apply them to their real-life experiences. By doing so, it keeps their attention while they retain critical information.

Mathematics is an important aspect of finance, so make sure children understand it. Addition, subtraction, multiplication, and division are necessary to calculate upcoming events. Help them out by doing it side-by-side with them.

Last but not least, children have their personal learning style. Some like firsthand demonstrations, while others are visual learners. Depending on the children in question, one must accommodate their specific needs. The learning rate varies for each children, but as long as they start early, they have plenty of time to catch up.

Beware Of Potential Risk

Whenever investors try their hand in standard brokerage, there is always a financial risk to their funds. The market can be unpredictable due to interest rates. Company value is volatile and can fluctuate for one reason or another. It can be difficult to deal with such a trading risk since it can happen at any time. For example, a business scandal can bring down their value.

Remember - kids are not old enough to understand high levels of investment. Only through experience can they get used to investing in stocks. Every parent should guide them along as they manage accounts together. It's also a good way to build effective bonds with one another.

What Every Child Should Avoid In Their Investment

There are common mistakes made in the stock market. When caught early on, children can avoid them entirely. Here are mistakes to keep in mind, since they negatively affect performances:

  • Lack of preparation

  • Poor finance management

  • Emotional decision-making

  • Over-reliance on mechanical trading bots

  • No record-keeping for the books

Another piece of advice - to avoid federal taxes, be mindful of how much is put into the account. Anything over $15,000 within a year results in extra charges. Children can give themselves a rate reduction with unearned income. Always keep track of potential taxes within the account. Also, discuss trading foreign currency with a financial advisor before doing so.

Get Started With Retirement While They're Young!

Every child should save a little now so they can use it for later. More importantly, they should set up a specific account for early retirement. An emergency fund goes a long way to financial security. No one can accurately predict economic hardships within the future. In the case one occurs, brokers and traders can stay one step ahead with retirement plans.

Never spend all in one place. Make sure to save a good amount for the future. By doing so, it causes the savings to grow over a long stretch of time. The technique is also known as compounding, which is an effective method is maintaining a financial lifeline. Whether one wants to buy, sell, or trade something in the market, traders should always have enough to save. Even a little goes a long way to be a lot.

In Full Summary

Investing in one's future is an important step to take into adulthood. Children can use parental accounts to dip their toes into the stock market. It's a complex world built on buying, selling, and trading stock. However, both youthful and old traders can learn a thing or two.

The stock market requires years of experience to truly master. Investing early gives one the inherent advantage of honing their craft beforehand. Take the time to learn about investing, since it can pay off in the future. Now is a good time as any to act as a broker and guide children to financial success.

Several companies can help manage upcoming entrepreneurs. Always do the research beforehand to make smart investments today.


Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, LTD., a registered investment advisor. Stratos Wealth Partners, LRD. The Kelley Financial Group, LLC are separate entities from LPL Financial.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. The content is developed from sources believed to be providing accurate information.

No investment strategy assures a profit or protects against loss.

Investing in mutual funds involves risk, including possible loss of principle. Fund Value will fluctuate with market conditions and it may not achieve its investment objective.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawal prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% penalty tax. Limitations and restrictions may apply.

The prices of small and mid-cap stocks are generally more volatile than large cap stocks.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investors yield may differ from the advertised yield.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate or return and fixed principal value.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.

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