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How Old Do You Have to Be to Invest in Stocks?
Younger generations of this day and age are more aware of investing and the stock market than their older counterparts. The youth is now interested in investing in the stock market even as they attend school and college. But the question is, at what age can you begin investing in the stock market?
In this article, we will go over how old you need to be to start investing and how to begin your journey of investing in the stock market.
What Is Investing?
Simply put, investing means committing two things available to you at any point in time: money and time. In other words, investing means committing your capital to an asset (either a project, a company, or a property) for a certain period, with the hope of bringing in a profit. Yes, this means there is a certain amount of risk involved with investing. However, with judicious use of your resources, you can minimize these risks and maximize your profits.
How Old Do You Have to Be to Invest in Stocks?
You need to possess the ability to enter into a legal contract on your own before you begin investing. Since this can only be possible at the age of 18 (when you are considered a legal adult), you can only begin investing at 18. In fact, most brokers have ‘18 and above’ as their age restriction when setting up an account.
Keep in mind that some states in the United States might even have higher age restrictions put in place. For instance, in Nebraska, Alabama, and Delaware, you need to be at least 19 to begin investing. In Mississippi, you need to have reached the age of 21 to be eligible to invest in stocks.
Where to Start Investing
If you pass the age restriction placed on investing in your state, you must be wondering where to begin.
Your first course of action would be to find a suitable brokerage with whom you can create an account. For all the newbies out there, a brokerage account can be equated to a traditional bank account. You will carry out all of your transactions through this brokerage account, including buying and selling stocks, options, bonds, mutual funds, as well as exchange-traded funds.
Things to Consider Before Choosing Your Brokerage
A brokerage is your ticket into the world of stocks. This means you need to be extremely careful in choosing the right one. Let’s go over some of the things you need to keep in mind before choosing your brokerage.
- Educational resources: If you are a beginner in the stock market, you will need as much information as possible. Most brokerages provide educational tools and resources for newbies. Find out if these resources are enough to get you started. If not, you might want to consider another broker.
- User interface: A chunky and glitchy platform can spell disaster for your hard-earned money. It is, therefore, essential that you find a platform that is smooth and easy to use. You can either check user reviews to gather this information or set up demo accounts to try the platform.
- Chargeable fees: This is the most important thing you need to consider in a brokerage. Most brokerages offer their services at a trading commission. Conduct some research on other fees that you might incur as well, such as real-time data fees, fees for options trading, and so on.
- Customer support: Since this will be your precious money that you would be dealing with, your brokerage must extend quality care and support to their customers.
- Minimum balance requirements: Most brokerages require you to keep a minimum balance in your account. Figure out how much you would like to invest, and see if you would be able to meet your minimum balance requirements or not. Keep in mind that you might be charged a fine if you cannot meet these minimum requirements.
What if I’m Not Old Enough to Start Investing?
Just because you have not reached the age of 18 yet (or older, for some states) does not mean you have to give up on investing altogether. In fact, there are ways in which you could get around this age restriction and begin your investment journey right now.
Let’s discuss two methods in which you can begin your investment journey today, even if you are not legally old enough to open a brokerage account.
Open a Custodial Account
In order to do this, you will need to enlist the help of your parents or legal guardian. There are two Acts that provide parents with the right to invest and save money in the name of their child. These are the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA).
With the help of these Acts, you can open a custodial account with your parents as joint holders and begin buying and selling stocks just like you would in a standard brokerage account. Your parents can contribute to this account, and there are no restrictions on the contributions being made.
Once you have attained the legal age required by your state to begin investing on your own, the control of the custodial account and all of its assets will be transferred over to you, and you can then begin investing in it as a legal adult.
Open a State-Sponsored Investment Account
You will need the help of your parents or legal guardian for this method as well. A state-sponsored investment account can be opened under the 529 Savings Plan.
While your parents will be required to open the account for you, they can appoint you as a beneficiary. As such, you will be able to use the funds in the account for all of your educational expenses.
Again, as we saw with accounts opened through the UTMA and UGMA Acts, you will be able to buy and sell stocks on a state-sponsored account much like you would in a standard brokerage account. However, you need to keep in mind that all of these accounts (UTMA and UGMA accounts and a state-sponsored investment account) have several limitations compared to a standard investment account.
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Have you heard the old proverb, “You’re never too old or never too late for anything”? If that is something you believe, then the reverse must be true as well! In other words, you are never too young or too early to do something. Even though most brokerages have age restrictions put in place, this does not mean you need to wait until you have reached the required age. In fact, the earlier you start, the better your investments will turn out to be in the long run!