- Legal States
- How Old Do You Have to Be to Invest in the Stock Market?
Luke Thompson July 5, 2021 11 min read
How Old Do You Have to Be to Invest in the Stock Market?
Investing in the stock market used to be the preserve of hardened mainstream financiers who went to college and took significant pains to learn more about the world of finances, stock markets, and the economy as a whole. Luckily for you, improving your financial literacy is not a matter of age but rather of genuine interest in not just stock markets but investment opportunities.
Setting up a brokerage account will surely require that you are of the legal age, but educating yourself and tracking trends is an experience that can start as early as your teens. In fact, it’s what Warren Buffett did, and he’s arguably the best investor of our time.
So, the question “how old do you have to be to invest in stocks” is suddenly not so much about any age restrictions as it is about your mindset and attitude towards investing in stocks. Obviously, most brokerage services will expect you to be at least 18 years old before you can open an account.
But don’t worry, because there are options for those who want to invest in stocks but need a little help as they are a bit too young still. First, we will take a look at where you can get started if you are of the legal age of 18.
Already 18? Here Is How You Can Start Investing in Stocks
There are two pillars in getting started with any type of investing. First, you need to decide what types of investment you want to hold. Are you going after government bonds, stocks, options, or exchange-traded funds (ETFs)? There are many financial services you can tap into regardless of whether you want to buy stocks. To start investing, you need to fulfill the second condition, finding a brokerage service that you can trust.
Brokerage services have a vested interest in attracting you as their customer as they generate income based on consumer participation in the stock market. Therefore, you can expect many services to try and appeal to you by putting forward various marketing baits. You should always do your research and stick with the brokerages that are recommended and endorsed by a high number of people.
Due diligence is an essential part of your long-term success as an investor, and it will help you with everything, from calculating risk to determining the minimum amount it is that you should invest. Once you open your brokerage account, you will be investing with your own money, so keep this in mind.
Remember that anything you buy through a brokerage firm can be liquidated as you see fit, and you can always cash out if you think that some of your investments are not going according to plan. Picking a brokerage will be important for your future success.
How to Choose the Right Brokerage for You
Recent events have spurred many young traders into exploring investment opportunities, empowered by platforms such as Robinhood, a trading app that allows people with no prior financial experience to gain access to financial markets.
Robinhood is designed to meet the needs of a younger audience of investors who are only getting started. Regardless, picking a platform that is right for you will give you the confidence to place trades, buy and sell stocks and generally benefit from the full functionality of that platform. So, where do you start?
- Fees: The first thing to always look out for is fees. You must be fully aware of what fees will apply to the trades you make and stocks you buy and how your gains will be impacted in the end. There are various fees that apply, including trading commissions or real-time data fees, for example. It’s always good to learn about those and act accordingly.
- Accessibility: One of the reasons why Robinhood is so popular is its inherent ease of use. Making the user interface more accessible through apps is one of the best ways to involve traders and make sure they understand the platform in its entirety. Investors, regardless of their age, will always want to make sure the option they use is tailored to their specific needs.
- Tools: Depending on how advanced of a trader you are, you will expect to see certain tools available. Tools mostly have to do with educating less experienced investors and catching them up on what they need to know. Resources such as Investopedia are great, but ideally, you want to have a comprehensive library of resources available in your brokerage app so that you can learn before you make a trade or buy a stock.
- Balance: It’s always a good idea to be clear on how much you are willing to invest. Some brokerage firms may expect you to maintain a minimum balance that could be hard for anyone who has just turned 18 years, so make sure to factor this in when getting started and picking the right brokers.
Can You Invest in Stocks at 16?
Yes. Investment opportunities are available even when you are a minor, and while you won’t be able to represent yourself, you can ask a parent or a guardian to buy stocks for you.
Alternatively, you can open a custodial account, which means that a broker will serve as an intermediary so that you can proceed with buying and selling different financial vessels.
As a child or rather a minor, you will have to also put up with certain restrictions which are designed to protect you from running too high a financial risk. In the United States, a parent can save and invest on behalf of their child through The Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) which are designed to enable this type of investment.
Once the child is of the legal age, whether this is 18 or 21, they will then be able to continue managing their accounts but would no longer require oversight to do so.
These accounts will naturally be somewhat restricted in terms of what assets you can buy and sell and what investment opportunities you can explore until you are of the legal age.
Nevertheless, they are a good way to familiarize yourself with how the stock market operates, and while you may be restricted, once again, you can go ahead and continue to improve your grasp of how investments work and how the economy allows you to turn this knowledge into financial wealth.
Tips for the Stock Market as a Young Investor
Whatever your age, whether you are 16 or 18, or younger, what you need to know about the stock market can be taught at a very young age. What you need are basic literacy and the right mindset.
The best investors do argue that some people are just not “fit” to invest in the stock market because they act on imperfect information and often end up selling or buying assets in investment moves that do not benefit them.
However, there are practical tips and pieces of advice to incorporate in the investment strategy that will allow you to manage your risk and money much better in the world of finance.
#1 Study the Stock Market
The first thing to do is learn how the stock market works. You may be thinking that it’s all about numbers and math, but it really isn’t. In fact, many traders spend a lot of their time reading.
Warren Buffett himself argues he reads around 500-600 pages a day to stay informed. He scours the pages of the Financial Times, Wall Street Journal, New York Times, and other respected publications because, as the investor says, “knowledge accumulates itself.”
You don’t have to read 600 pages a day to be a successful investor, not unless you want to do so. What you need to do is pick companies you read about and follow. Gaming and esports organizations are an interesting pick these days, but so are alternative options, such as buying stocks in other entertainment companies.
By investing in stocks and companies that you follow, you will have an incentive to stay updated and feel that your investment forays are a reflection of your real-world interests, which is actually how many young investors get started in the first place.
#2 Diversify Risk by Buying Multiple Stocks
You do not want to be stuck with one or two companies. There is a reason why hedge funds buy everything they even remotely suspect holds the promise of higher income. In the world of finance, mitigating risk is a common practice and one you should learn about.
That is not to say that you should buy anything that is offered as one company will almost certainly be much better than another company. However, you want to continue learning about stock options and what makes the most sense to purchase.
Ultimately, you want a well-diversified stock portfolio that will not crash. Whether you are investing through a custodial account or are 18 years of age, you will find this tip to be one of the best and most worthwhile ones when you start investing.
#3 Do Not Liquidate Too Soon
Young investors can be skittish, and with your money on the line, this is understandable. However, you should probably buy stocks looking at how these assets would mature in the long term. Of course, trading daily to clip a margin is also a viable strategy, but one that is much more intense in terms of effort expended on it.
Buffett himself advises investors to never buy and sell too quickly and to ignore the phenomenon known as “Fear of Missing Out” or FOMO, which turns reasonable investors into impulsive traders and brings them closer to gamblers than to financiers.
You want to back an asset you believe will prosper in the long run and stick to it. Of course, there are some circumstances that may require you to divest a certain stock or stocks from your account, and that is perfectly reasonable if you are acting on knowledge and information.
#4 Accept That Investments May Fail
An almost too-reassuring piece of advice, there is common wisdom in stock markets, and that is that an investment may simply not pan out. You may invest by acting on solid research and follow trends or even predict some in the making, but this is no guarantee that your choices will lead to gains. On its own, this sounds uninspiring.
However, when you apply it to your broader stock trading strategy, you will feel freer to make tougher decisions. You can divvy up your capital in a way that covers various asset classes and thus know when an investment is likely to fail. When it does, don’t get hanged upon it, but rather move on.
#5 Pick Low and High-Risk Stocks
Balance is everything, and just like life, your stock portfolio should reflect this idea. You want to have safer stocks trading and then buy higher-risk ones that will bring you a much better return. Many inexperienced traders get confused and think that they can buy just about any high-risk stock.
However, the same investment principles apply. You want to pick a stock that, while carrying a higher-than-usual risk, still has a good chance of making your money and investment worthwhile. That is why finding a portfolio that diversifies and balances between levels of risk is a time-tested method that allows you to make the most out of your efforts.
What Does All of This Mean for Your Investments?
Trading is an exciting journey and one that will invite risk, prescience, and perhaps even some luck. How you treat a market is the result of knowledge and decision-making, as demonstrated by many successful financiers.
If you choose to begin this journey when you are young, you will have a great chance to learn a lot about how the stock market works intuitively and internalize that knowledge, much like Warren Buffett did. However, it’s good to know that you are never too young or too old to invest in the stock market.
As long as you exercise caution and never invest all your savings, diversify your portfolio and keep researching the best assets and opportunities out there, you are bound to make the right calls along the way.
Approach investing with genuine interest because, at the end of the day, it’s an activity designed to make you rich. All that you need is composure, commitment, and the proper mindset that good things happen to people who continually seek to improve themselves. Can you invest and smash the market at the age of 18? You most certainly can try.