How Old Do You Have To Be To Buy Stocks?

Q:

 How old do you need to be to buy stocks?

A:

Investing at a young age can be a wise decision that may help you become financial independent sooner, rather than later. Even if you lose a little bit of money, you may learn from your mistakes and make better investment decisions in the future. But at what age can you start investing in stocks in your own account?

Age Restrictions on Buying Stocks

The answer is not simple. The state that you live in will determine the age at which you can open a brokerage account on your own to buy stocks. The the age range to buy stocks is between 18 and 21 years old. Check your state law to determine the age that you buy stocks.

Custodial Accounts

If you are under the minimum age requirement to buy stocks, an adult can open a custodial account for you. This account allows your parent or guardian to make trades (manage your account) on your behalf. The funds in the account belong to you (the minor) and can only be used to benefit you. The custodian of the account cannot change their mind and later decide to move or use the funds for another purpose.

Once a minor reaches the age of majority (18 or 21 depending on the state) the assets are released to the minor. If you are a parent setting up a custodial account, you might want to think twice about doing so if you do not think your child will be responsible with the account. It is no surprise that some young adults do not have excellent money management skills.

On the other hand, opening a custodial account can help your child learn the basics about investing and saving. They will potentially learn how to trade, how to make investing decisions, and generally what it takes to make an investment grow. Getting a child into the routine of saving and investing can help establish solid money management skills that they can use throughout their live.

Parents Account

If you are a minor, you can technically have your parents open a brokerage account in their name and make trades in this account with your money.  This would bypass the need for a custodial account, however, you would have to trust that your parents would allow you full access to funds. Since the account would be in their name, there would be nothing stopping them from selling your shares and using the cash for whatever reason.

Additionally, if your parents have an existing brokerage account, you could have them place trades in this account for you. However, this may require strict record keeping to organize your trading records from your parents. Things could get pretty confusing if you both are trading the same stocks.

Brokers for New Investors

If you are starting out in buying stocks, you should seek an online broker that is newbie friendly. This means that they offer things like no account minimum balances, no inactivity fees, and minimal trading fees. Here are a few brokers that you may consider:

BrokerOnline Trading Fees (Stocks & ETF)Account MinimumInactivity FeeTrading ProductsWebsite
Ally$4.95$0$0Stocks, Options, ETFs, Bonds, Mutual Funds, Forex, Futureswww.ally.com
Capital One$6.95$0$0Stocks, ETFs, Mutual Funds, Optionswww.capitaloneinvesting.com
TD Ameritrade$6.95$0$0Stocks, Bonds, Mutual Funds, ETFs, Options, Futures, Forexwww.tdameritrade.com
Scottrade$6.95$2,500 brokerage, $0 for IRA$0Stocks, Options, Mutual Funds, ETFs, Bondswww.scottrade.com
Etrade$6.95$500 brokerage, $0 IRA$0Stocks, Bonds, Options, Mutual Funds, Futures, ETFswww.etrade.com
Charles Schwab$4.95$1,000. May be waived if set up automatic monthly transfer$0Stocks, Bonds, Mutual Funds, Options, ETFswww.schwab.com
As of 7/1/2017

 
Be sure to read all the fine print before signing up with a broker. Beware of all the fees and account minimums that may be in place. Remember that just because a broker offers the lowest trading fees, it does not mean that this is the best broker for you. It is important to consider all the aspects of the account before you begin trading.

Additionally, buying stocks may seem like a quick path to riches, but it is much harder than you might think. Most people are unable to beat the returns of the market (S&P 500) in a given year when selecting individual stocks. To be a successful investor you must do your research and constantly learn from others who have had success over the long-haul. Read and read some more about successful businesses, accounting, finance, and great investors. If you don’t know the basics like what is a dividend or what is a P/E ratio, you likely have no business buying stocks at any age.

As the greatest investor of all time, Warren Buffett, once said, “Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund.”