How Old Do You Have To Be To Buy Stocks? – Start Investing Early
If you’re 15, 16, or 17 years old and interested in all things stock market and mutual funds, you might be wondering, “how old do you have to be to buy stocks?”
The short answer is that it depends. In most cases, you need to be at least 21 to invest in stocks. However, this varies by state – and there are ways around this hurdle.
So if you’re looking to start investing young and wondering how old you need to be to start buying stocks, you’re in the right place! Let’s dive into the world of early investing so you can get the answers you need.
Age Requirements for Trading Stocks by State
Many people start investing in their 20’s or later, and for the most part, the minimum age to begin investing in the stock market is 18. This is the age you need to be to open your own brokerage account and start trading. If you are younger than 18, you still have options (which we will discuss shortly).
Why are there Age Limits on Stock Trading?
Although it might be frustrating that you need to wait before you start playing around in the financial markets, there are some good reasons as to why there are age limits on trading stocks.
One is that you need to be 18 because this is considered the legal age of adulthood in most places. You have to be 18 in order to sign a contract – which you must do if you plan on buying and selling stocks. It’s easy to forget, in the modern age of publicly traded companies that operate primarily on the internet, that you are entering into a legal agreement.
However, that’s what it is. When you sell or buy a stock, you are effectively signing a contract. Minors can’t enter into contracts, with any contracts signed by minors considered legally invalid. Most brokers, therefore, won’t allow you to open a brokerage account until you’ve reached the minimum age for account ownership in your state of residence.
Consider a Custodial Brokerage Account Instead
Minors cannot legally operate their own brokerage account. However, they can still gain access to financial markets – they just need to be a bit more clever about things. Rather than focusing on brokerage accounts before you’re 18, you should consider tapping into the markets with a custodial account.
Custodial accounts are owned by your parents or legal guardians. The assets in the account will be held in your name until you reach the minimum investment age in your state.
You can have your parents deposit your money and make the trades on your behalf. Your guardian must be the one to place orders and do any administration of the custodial account. You can then receive full ownership of the account once you reach the legal age in your state.
How to Start Investing When You’re Young
Even though it may be too early for you to start playing around in the stock market, there are lots of ways you can tap into this exciting endeavor. If you aren’t old enough to buy stocks and don’t have a parent on board who can help manage a custodial account, there are a few other options you can pursue in the interim.
Try a Roth IRA
A Roth IRA is a type of investment account that you can start at any time as long as you have the help of a parent or guardian. You can put money in that has already been taxed and it will grow in the investment account, tax-free. You won’t be playing around with buying or selling stocks, but it’s still a good way to build your savings over time.
Open a High Yield Savings Account
Another option you can pursue is to open a high-yield savings account. These can be opened at any age with the cosignature of a parent or guardian – and while you won’t get anywhere close to the gains you’ll get when investing in stocks, it’s a low-risk way to earn a little bit more on your savings than you ordinarily would.
Try a Micro-Savings App
If you already have your own checking account, you can link it to a micro-savings app. This will let you save and then invest the change from every purchase you make with your debit card linked to the checking account. Acorns is an example that’s great for teenagers!
Learn Your Stock Market Vocabulary
If you’re interested in trading but aren’t old enough to do it yet, take some time to educate yourself.
Learn stock trading and investment terms so that you’re up to date with all the lingo you need to know to start investing when the time finally comes.
You should understand the various types of tradable assets, including futures, options contracts, cryptocurrencies, ADRs, and more. You should also educate yourself on the differences and similarities shared by mutual funds and ETFs.
Know the Difference Between Types of Stocks
So many young investors are unaware, when they first start investing, that there are different kinds of stocks. Research the benefits of investing in each type, including penny stocks, growth stocks, value stocks, and blue chip stocks. Have a clear investment strategy in place so that you can jump right in as soon as you’re ready.
Familiarize Yourself with Buy and Sell Orders
Just as there are different types of stocks, there are also many types of buy and sell orders, both of which are crucial to understand if you want to have a rock-solid trading strategy. Familiarize yourself with the different types of limit, market, and stop-loss orders so you know when and how to use each one.
Research Financial Statistics
Did you know that publicly traded companies are legally required to disclose specific financial information to the public? That way, buyers know exactly what they’re getting into when they begin investing in a certain company.
Take the time to learn how to read these disclosures, also known as SEC reports, and familiarize yourself with the most common terms you see there – things like dividend and earnings per share.
Take Some Classes
Something else you can do before you reach the legal age to start investing is to take classes at school. Chances are, your school does not have a class in Stock Market 101 – but it does have classes in things like economics, business administration, statistics, and finance.
All of these courses can be instrumental and will provide you with the knowledge of the stock market you need when you are finally able to open your own brokerage accounts.
Play Around With the Market
If you’re not yet of the legal age, you can’t play the stock market with actual money. However, you can play it on paper.
Grab a notebook and create for yourself a “brokerage account.” You can browse the market with a stock screen and search for stocks based on your desired goals. Take advantage of stocks of companies that you are already familiar with, like Disney. Trade on paper for a few weeks, recording your buying and selling. It’s a great way to practice and to prepare yourself to begin investing – all without having to spend any of your actual money!
Subscribe to Stock Market Newsletters
Educate, educate, educate – that’s the name of the game if you want to earn the best possible investment income when you reach the right age!
It’s a great time to find and then follow a market news source – and to start reading financial newsletters. Check with your news source a few times a day so that you are familiar with pre-market news, post-closing news, and midday activity reports.
Compare Brokers
Now is also a wonderful time to start comparing brokers. There are dozens of brokerages, from M1 Finance to Robinhood, that offer online accounts in which you can buy and sell accounts from your own computer or phone.
Doing your research now will save you the aggravation later when you’re legally able to open your brokerage account and are itching to dive in.
Here are some variables to consider.
Ease of Use
How easy a brokerage firm is to contact and work with is important. Each one uses its own platform, some of which are beginner-oriented and some of which are not.
Start with a brokerage that has a simple, easy-to-use platform. Many also have video tutorials that you can tap into.
Fees
Some brokerages charge fees for transactions. Search for one that has low fees and commissions – or one that doesn’t charge these at all.
Resources on Stock Market Investing
Last but not least, try to find a broker that values education and has a wide range of educational resources, like courses, video tutorials, and webinars, that you can use to boost your trading success.
Final Thoughts: Investing at a Young Age
If you’re underage and ready to dive into the stock market but don’t want to open a custodial account, just know that there are plenty of other things you can do to get ahead.
While a custodial account is by far the best option if you have money and want to start trading now, even doing things as simple as brushing up on your stock market vocabulary and subscribing to financial markets newsletters can be helpful.
Follow these tips – and you’ll be ahead of the curve when it’s time to start investing!