How To Invest in Stocks if You are Under 18 Years Old?
We have all heard our elders tell us that it is never too early to start investing and saving. But investing in stocks is for adults, right? Wrong. If you start investing as a teenager, you will be able to handle your finances better as an adult.
The only issue that prevents teenagers from investing in stocks is that you usually would need a bank account to invest in stocks, and opening one underage is very difficult in most countries. This can make teens skeptical, and parents will hesitate to allow their children to invest in the stock market with their bank account. The good news is that there are a few workarounds that you can consider if you want to start investing and trading in the Stock Market as an underage Teenager.
At What Age Can I Buy Shares?
As mentioned before, it is a legal requirement for you to be at least 18 if you want to buy shares in the US stock market. Since this is a constitutional obligation of the investment industry, you should not take any risks. Avoid opting for shady websites, and never trust any unrecognized company.
After reading all this, you may consider whether it is safe to get involved in stock trading or investing when under 18 years old. Luckily, safe and legal ways allow you to invest in stocks under the age of 18. One of the most common and secure ways is to open a custodial account. The details of custodial accounts are given below.
What Are Custodial Accounts?
Custodial accounts are financial accounts that an adult opens up for another person, usually for their children. So, for example, if you are under 18 yrs old and want to buy shares in the US stock market, you will need an adult, preferably your parents, who can open up a custodial account. This means that the custodial account owner will make transactions and keep your investment safe on your behalf.
The major benefit of custodial accounts is that the funds belong to the minor, and the account owner cannot use those funds unless they are for the benefit of the minor. Once you turn 18 (or 21 in some states), you can take over the account and start investing as an adult. Keep a lookout for the laws in your state because the legal age for stock trading ranges from 18 and 21 to 25.
How To Get Started in the Stock Market?
Entering into a business can be the hardest thing you can ever imagine. So, is getting into the stock market easy, especially when you’re underage? It isn’t. But let’s know the ways you get started in the stock market without adopting some fishy ways.
1. A Word of Caution
Once the legal aspect is out of the way, the next thing you will need to do is research. Even though investing in stocks is not rocket science, you still need adequate knowledge before entering the market. Again, discussing these matters with an adult with sufficient experience is good practice to guide you in the right direction.
Discuss your financial goals and understand the different opportunities you have, along with the risks involved with each one. Learn to be realistic. Investing in stocks requires a lot of patience, and you must wait to make money. Always start slow and never invest all your money in a single stock.
Learn how to interpret market trends, and understand when you should buy and sell your shares. Teens tend to get inspired by social media, but remember that only some investment opportunities you come across on the internet are worth spending your money on. Try to align your actions with your goals.
2. Learn the Basics
No amount of research can teach you about the stock market like experience can. When going through different stocks in the market, shortlist a few that you would like to invest in. You can opt for your favorite fast food chain or popular companies like Coca-Cola and Pinterest. Just make sure they are trustworthy.
There are quite a few different lists that you can find online, which will guide you about the payout records of different companies. Analyze the amount of risk that you are willing to take. Choose from different investment types, which include growth, income, and value investing. Also, understand the differences between active and passive investments, and choose the one that seems suitable for your needs.
What is the Best Investment for Teenagers?
Stocks are a good way to start your investment journey, but they do not have to be the place to stop. Once you know the technical terms used to address stocks and have gained enough understanding about their specifics, you can move on to other platforms. Some common and beneficial platforms have been discussed below.
1. High-yield Savings Accounts
High-yield savings accounts are ideal for those who want a risk-free way of earning a steady amount on their savings. You can opt for your local banks or even look for online ones that provide a considerable compound interest rate. This is suitable for teens with a significant amount of money they are not using now.
2. Mutual Funds
Mutual funds are a collection of individual stocks that belong to different companies. This means that the risk is divided as you are not depending on a single company for your earnings. Look for diverse funds to increase your exposure to different markets and companies.
3. Micro Savings Apps
Several stock market apps for teens are available online, designed to help them achieve financial stability at an early age. Micro savings apps are useful for saving up a tiny amount of money on every purchase you make using your debit card. Once the money adds up, you can use it to invest in stocks and mutual funds.
Investing in stocks when you are under 18 can be a great way to achieve financial stability early. First, ensure you have an adult who can open a custodial account for you. Conduct proper research about the different types of stocks and learn about the specifics of each company before you decide to invest in their shares.