Investing in the stock market early in life is a fantastic way to invest in your future. Learning how to grow your wealth through investments is a valuable lessons about the power of investing, and can establish strong spending habits and smart money decisions throughout your life.
The problem is, many children and teens do not think they have the opportunity to invest in the stock market until they are at least 18 years old. Often times, they consider themselves too young to get involved in the stock marketing and investing as a whole. Additionally, understanding the stock market and how to mindfully invest your hard-earned money can be overwhelming at first for people of all ages. With the help of a parent or guardian, however, it is completely possible to invest in the stock market before your 18th birthday in a safe and effective way.
There are two main accounts minors can open with the assistance of a parent or guardian to begin purchasing stocks and investing. To get started, you must first decide what investment account is right for you with the help of the adult opening your account. There are two types of accounts you can have opened on your behalf as a minor: a custidial brokerage account, or a custodial IRA. Both provide unique opportunities for you as a future investor.
Custodial Brokerage Account
A custodial brokerage account is considered your asset, however you will not be able to access it until you turn at least 18 years old. Once you reach the age of eligibility outlined in the account, the custodial brokerage account will now be in your name. The adult or adults managing this account on your behalf can make deposits at any time. Any money taken out of this account must be used on your behalf.
A custodial brokerage account is best for children and teens that do not have taxable income or wages. Before you consider opening a custodial brokerage account, you should also research which law your state follows for establishing accounts: the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA). While very similar, the main difference between the two is this: a UGMA account only allows for a limited set of possible assets, including cash, stocks, bonds, etc. On the other hand, the UTMA account allows you set up a custodial relationship with most type of assets. You should discuss the details of these accounts to determine if a custodial brokerage account is the best choice for you.
Custodial IRA
A custodial IRA is controlled by the accompanying adult until you turn at least 18 years old. This account is ideal for you if you have a job and earn income. In addition to contributing a portion of your own income, parents and guardians can contribute as well. Talk to your parent or guardian about matching contributions, or a potential plan to match a portion of your investments to maximize growth in your IRA.
In a custodial IRA, the funds depostied can be removed at any time, and also used towards investments in retirement, as well as purchasing a home or future education. It’s best however to keep these funds in the account for as long as possible – the longer your investments stay in your account, the more they will grow expontentially. For these kinds of large purchases, it is best to use another method of financing to keep your IRA growing.
How to Get Started
Once you have identified which type of account makes the most sense for you, your next step should be to choose the right broker for you. A broker is either an individual, or a firm, that acts as your agent through your investment process. When looking for your ideal broker, try to find options that charge little to no account fees. This will help you avoid any hidden costs you may not be aware of until after you have already opened your account.
It will also be beneficial to find a broker that does not require minimum initial deposits. When you opt for a broker that doesn’t require a minimum deposit, you can start investing with a small amount of money. This will help you get started investing as soon as possible, and give you more time to grow your investments.
After you’ve opened your account and chose your broker, you’re ready to start investing. With the help of your broker, you will be able to invest in individual stocks, mutual funds, index funds and exchange traded-funds. When deciding what stock investments are right for you, try identifying companies and brands you are familiar with to start. As you learn more about the stock market through your experience, you will be able to make even more informed decisions about which stocks are best to invest in.
Maintaining and Growing Your Investments
Once you’ve begun to make investments in individual stocks and learned more about the market, you can work with your broker and your parents or guardian to determine your next investment steps. Over time, you can grow your investments significantly by making the right choices. From here, you can choose to invest in different types of funds, trade your stocks, and continue to build your stock portfolio – all before you turn 18 years old!
At first glance, investing in the stock market is a daunting concept for anyone. There are plenty of things to learn and various details when it comes to buying, trading and investing in stocks. As a young person, it can be even more overwhelming when you start. Working closely with your broker, your parent/guardian, and doing your own independent research about the stock market will help you expand your knowledge and continue to make smart investment decisions down the line. By investing at a young age, you are getting a head start into planning your future, and setting yourself up for financial success!
