Buying stocks is a great way to build wealth. However, you must invest early to see the full benefits of compounding. Therefore, the perfect time to invest in stocks is during your youth so you can reap the returns when you’re older. But how young is too young? How old do you have to be to buy stocks?
In most states you must be at least 21 to invest in stocks. In some states though, you can start buying stocks at 18. If you’d like to hold stocks before you’re at the minimum age, you can work with your parents to open a custodial account. If you’re just interested in learning to trade, consider paper trading instead!
We’ve split this article for two types of readers:
- Young people/their parents who’d like to buy stocks to start building wealth.
- Young people who’d like to buy stocks to learn about trading.
Just skip to the section that suits your objectives and let us know if you’d like to know more in the comments at the end of the article!
If you’re Looking to Build Wealth, Open a Custodial Account
If you want to own stock to build wealth, then you might need to have your parents open a special account for you to hold stock. They can then gift you stock. We’ll address this section to the parents, but you can read the points here too.
Without further ado, here are the ways on how to give stock to your child without special restrictions.
1. Open a Custodial Roth IRA with your Child
You need to open a custodial Roth IRA account for your child unless your child is already 18 years or 21 years old (depending where state you reside). This custodial Roth IRA account is just like a regular Roth IRA account, but it takes a lower minimum investment amount. Not all brokerage firms offer custodial Roth IRA; hence, here are some firms that offer Roth IRA accounts for minor:
As a parent, being the custodian of the Roth IRA account, you are the one who is allowed to control the assets of the account until your child is no longer considered as a minor.
Hence, you can still make contributions to your child Roth IRA as long as your child does not earn that much. Also, the Internal Revenue Service (IRS) does not mind whoever made the contribution as long as the minimum contribution is met.
2. Sign Up for a 529 Account Plan
Most of the parents have already prepared their child’s future by investing thousands of dollars in the so-called 529 account plan.
The 529 plan is a kind of tax-advantaged saving plan wherein it can be used to cover your child’s educational expenses from kindergarten up to the graduate school. You may set up your own 529 account on behalf of your child, who is your beneficiary, later on.
You may start investing your $20 or $50 gift on the 529 , and later on, it may add up over time. As a parent you may also ask your kids to invest the money they receive during their birthdays or during Christmas in the 529 plan.
You may also use a service provider such as Collegebacker as a platform to make and set up a 529 plan. Once it’s set up, your child will receive a unique URL, on which the link can be shared to your family and friends so that they can contribute easily to the 529 plan. There is no minimum amount for contributions, therefore, any amount will do.
3. Invest on a Fractional Share
For those who are not familiar with what is a fractional share, well, a fractional share is just a portion of less than one equity stock, which comes from stock splits or the result of a dividend reinvestment plan (DRIP).
In fact, there are a lot of sites dedicated about buying fractional shares, one very good site is the Stockpile, wherein it is an online brokerage service that allows you to sell, purchase, or gift fractional shares through gift cards.
Criteria to open a stockpile account:
- You must be a U.S citizen
- You must be 18 years old and above
- Minors are not allowed to receive stock gift cards UNLESS their parents set up a custodial account for them
- The minimum allowable purchase is $5
What’s so good about Stockpile is that you can give stock gift certificates to your child, which he/she can physically use to redeem and see how it works.
4. Buy a DRIP from a Company
Another way to give stock to your child is to purchase a DRIP directly from a company. A DRIP is a kind of plan, wherein a company or a brokerage firm allows you as investors to use the dividend returns to buy more shares.
You may check this site to know information about DRIP, the companies that offer DRIP such as JNJ, MMM, and KO, and to know the services on how to set up a custodial account for your child.
To start up with DRIP, you must have bought at least one share of the company stock before you will be allowed to enroll in the company’s DRIP. You may look for free-free companies such as Hasbro and Hershey’s that offer DRIP for their shareholders.
If you just want to Learn About Trading, Consider Paper Trading First.
Paper trading is also known as virtual trading, wherein you can practice buying and selling trades without involving and risking your actual money. For young people or parents who want to teach and introduce the world of trading, you may start with paper trading.
Virtual trading is also used by beginners in trading so that they can make the best-investing strategy before they will fully enter the world of trading. Well, this method might help you because you will have a gist of the actual trading world so that before you commit your money to a brokerage firm, you already know the process. You don’t have to worry about how old do you have to be to buy stocks or start learning about trades.
What’s good about this paper trading is that they use real-time information so that you can create your own stock trading strategy and design a portfolio just in case you will commit to actual trading.
Hence, there are a lot of platforms for virtual trading, which you may try to learn from, so that once you have reached the legal age to join into the world of trading, you will be able to apply the trading strategies and your practice portfolio.
Here are the best paper trading platforms, which you may try:
1. TD Ameritrade
When it comes to virtual trading, the TD Ameritrade by Thinkorswim remains the top recommended platform to be used in the market. When you sign up for a TD Ameritrade account, you will have two different trading accounts: (1) a virtual margin account and (2) a virtual IRA, these virtual accounts are both funded with $100,00. In this way, you will be able to try out your trades both in taxable and non-taxable accounts.
In addition, TD Ameritrade will let you experience different trading tools and other resources such as data and insights about trading strategies for equities, forex trading, futures, and more.
2. Interactive Brokers
Once you have signed up for an Interactive Brokers account, you will get a paper trading with Equity amounting to $1,000,000, which will fluctuate just like in the real stock market. You will get a paper trading account statement everyday by assessing the Report menu on your Paper Trading account.
You may experiment the order types and trade all the instruments available, just like working your own production account of this platform. Hence, you can reset your paper trading cash equity account up to five times, but make sure to set the request before 16:00 ET so that it will be available for the next business day.
To know more information about paper trading accounts using Interactive Broker, you may check this site.
Another popular virtual trading platform is the Trade Station. With this platform, you may experience a real-time and no-cost trading, wherein you can access professional and education stock screeners and tools to help you become a good investor.
What’s so good about TradeStation is that they offer a variety of tradable assets, which are complemented with educational tools and resources so that you will have the chance to learn each asset.
Here are just a few virtual trading platforms that you may try. To learn other virtual platforms, you may do so by visiting this site.
So How Old do you have to be to Buy Stocks and why is there an Age Limit for Investing?
To answer the question of how old do you have to be to buy stocks? Brokerage firms do not accept clients who are below the legal age of 18, but for most states you must be 21. Well, the required minimum age for you to engage in trade forex is above 21 years old, because when it comes to trading, one must be mature enough to think and handle complicated decision-making.
The reason why there is an age limit before you can buy stock or be involved in the trading industry is that minors are not allowed to sign contracts since a contract signed by a minor will be considered void.
In addition, kids or minors are presumed that they are not aware of what they are doing. Therefore, during those times you may try the best platforms for paper trading that were mentioned above to help you become prepared, once you commit in the real world of trading.