What To Know Before Investing In Stocks – Find out more about what age you can start investing in shares and what to do if you’re under 18.
Shares represent partial ownership of companies. For example, if you own Amazon stock, you technically own a very small part of Amazon!
- 1 What To Know Before Investing In Stocks
- 2 How To Buy Or Invest In Stocks Online
- 3 Investing Explained: Types Of Investments And How To Get Started
- 4 What I Wish I Knew Before Investing In Reits
- 5 Stock Market Tips For Beginners, According To Professionals
- 6 What Are The Biggest Risks In Investing? — Bitpanda Academy
What To Know Before Investing In Stocks
As the company grows, so does the value of your shares. Over time, this can lead to significant wealth creation.
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And the earlier you can start, the better. But how old do you have to be to invest in stocks?
You must be at least 18 years old to open your own account and invest in shares. However, there are ways around this rule that allow minors to invest with the help of a parent or guardian.
To invest in stocks, you need a stock brokerage account. This account will give you access to the stock market, where shares of publicly traded companies are traded. These accounts are available from companies such as Fidelity, Schwab and Vanguard. All standard brokerage accounts have a minimum age of 18 years.
Fortunately, there is a special type of account called a custodial investment account. This type of account has 2 account owners: the user and the custodian.
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The guardian must be at least 18 years old and they actually open and manage the account. A user may be under the age of 18, but while they technically own the account, they do not directly control it.
The custodian retains control of the account until the user turns 18, at which time the user can sell assets or take over management of the account.
Parents and guardians often serve as custodians of accounts—although technically, any adult can be a guardian. So, a grandparent or even a family friend can open a custodial account on behalf of the minor.
Key takeaway: An individual must be at least 18 years of age to open a brokerage account and buy stocks, but an adult can help open a custodial investment account on behalf of a minor.
How To Buy Or Invest In Stocks Online
Investing in stocks doesn’t have to be complicated, but it can certainly seem intimidating to new investors! Here’s what you need to know.
If you’re just starting out (and you’re over 18), a standard brokerage account is a good option. Retirement accounts are also useful, but have more limitations and rules.
Once you decide what type of account to use, you need to choose where to open it. You can open any of the above accounts with a reputable broker, such as Vanguard, Fidelity or Schwab.
Some account types are also offered by newer investment apps, such as Robinhood or Webull. These apps are easy to use, but usually have less advanced features and a limited selection of accounts/investments.
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After choosing the broker you want to use, you can open an account by following their instructions. Brokers need a fair amount of information to open an account, but it shouldn’t take long. You will need to provide your:
Next, it’s time to decide what type of stock you actually want to buy. We’ll talk more about this in the section below, but the two main categories are:
If you’re brand new and just want to get started, choosing an index fund is a great starting point.
Now is the time to pull the trigger and actually buy something! If you haven’t already, you’ll need to transfer funds from your bank account. Once you deposit them into your investment account, you can start buying.
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To buy shares, you must place a buy order. To do this, you simply type in the name of the stock you want to buy, the number of shares you want (or the dollar amount you want to spend), and the order type.
For beginners, using a “market” account is the easiest. This means that the trade will take place at the current market price of the shares. If you place a “market” order to buy 10 shares of KSIZ, and KSIZ is trading at $11 per share, the buy order will be filled at a price of $11 per share ($110 total).
You can also set up a “limit” order, which allows you to set the price you want to pay. For example, you can say you want to buy 10 shares of KSIZ at $9 per share. In this case, the order will not go through unless KSIZ starts trading at $9 or less per share.
Stock trading takes place during certain trading hours, from 9:30 a.m. to 4:00 p.m. E T. If you place an order outside of these hours, your trade will be processed on the next trading day.
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Getting started with your first actions is exciting! But building real wealth requires a long-term commitment to regular investing.
It is wise to set up an automatic transfer to your investment account on a monthly basis. That way, you can automate your investments and passively build wealth.
You don’t need a big monthly investment to get a lot of money over time. If you invest just $100 a month for 30 years and earn a 10% return, you’ll have over $208,000!
There are literally thousands of companies you can invest in, in addition to thousands of mutual funds, exchange-traded funds (ETFs), hedge funds, and more. Where do you even start?
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Purchase of individual shares. This is buying shares of a particular company because you think that company will do well. It is a riskier strategy and requires more research and time.
Purchase of share funds. This is a way to spread your bets using products like index funds and mutual funds. These funds buy baskets of different stocks. When you buy into these funds, you are buying a small portion of all the shares they own.
In particular, stock index funds are a great option. These funds buy hundreds of stocks and track the performance of the broader stock market.
Funds that track the S&P 500, such as VOO, IVV and SPI, are quite popular. S&P 500 funds own the 500 largest publicly traded companies in America. So when you buy into an S&P 500 index fund, you’re buying a super-small portion of 500 companies, including Apple, Amazon, Microsoft and Nike.
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Retirement accounts are a type of investment account that offer tax benefits if you save money for retirement. But do they have different rules regarding the minimum age to invest?
In short, no – retirement accounts have the same minimum age of 18. But there are custodial retirement accounts that parents can open for their minor children.
However, retirement accounts have another requirement that prevents many minors from using them: You must have earned income to contribute to a retirement account.
“Earned income” is income from a job, business or side hustle. It does not include gifts, allowance or anything like that.
Know Everything Before Investing In Stocks
So, for example, a 16-year-old with a summer job could ask their parent or guardian to open a Roth IRA for them. They could then contribute to the account using some of the money they earn from their jobs.
If a minor has income and wants to save for retirement, a Roth IRA is a good option.
A Roth IRA account allows you to contribute and invest funds, allowing the investments to grow tax-free. When you retire, you can withdraw funds without paying income tax. In the long term, this can dramatically improve your return on investment and reduce your tax liability.
Minors can use “custodial” investment accounts. The account guardian must be over 18 years of age and be willing to open the account on behalf of the minor.
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Custodial accounts are not typically opened by parents or guardians—although technically, any adult can serve as a guardian.
The guardian must open an account with the broker using both his own and the minor’s data. From there, the guardian manages the account and investments—but the minor can play a role in making joint investment decisions.
For example, a daughter could ask her mother to open a custodial account on her behalf. From there, they could work together to set up accounts, make deposits and choose investments.
The guardian will have legal control over the account until the minor reaches the age of majority. When the minor turns 18, control of the account is transferred to his name. This can happen automatically or will require a manual process — it depends on the type of account and where the account is held. Note: In some states and for certain accounts, the account may not be transferred until the minor reaches the age of 25.
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Except for the need to use a custodial account, investing as a minor is the same as investing as an adult.
UGMA/UTMA Custodial Accounts: These are the “standard” types of custodial investment accounts available today. The acronyms stand for the Uniform Gifts to Minors Act and the Uniform Transfer to Minors Act. These accounts can be opened by any adult on behalf of a minor. There are no limits on contributions, and the money can be used for any purpose once withdrawn. Control of the account funds is transferred to the minor when they reach the age of 18 to 25 (this varies from state to state).
Custodial Retirement Accounts: These are retirement-specific accounts, such as custodial Roth IRAs. These accounts offer significant tax benefits, but have many more limitations. For contributions, the minor must have income and cannot contribute more
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