What is the best age to start investing?

Video how to invest before 18

As the old Chinese proverb goes: The best time to plant a tree was 20 years ago. The second best time is now. Here we explain what you need to consider before you start investing, whatever age you are.

The longer you can hold your investments, the more valuable they tend to become over time.

While that is true, the reality is that the time to invest only truly begins when you have the disposable income that you can afford to lose or keep tied up for the long term.

In this article, we will cover:

  • Why is investing for the long term?
  • How old do you have to be to start investing?
  • What are the investing options for children?
  • How do you do your homework first?
  • Where do I start when investing?

Related content: Investing for beginners

Why investing is better the sooner you start

Before you start investing, it is recommended that you have at least 3-6 months’ worth of essential outgoings in an easy-access savings account. This is your emergency savings pot should you lose your job or the boiler breaks down.

Once you have this set aside, investing early on can potentially make a huge difference to the amount you have in your pot, particularly if you leave your money invested for at least 5 years.

The value of your portfolio typically increases if you remain invested for the long term – particularly if you reinvest profits and dividends – because of the effect of compounding.

Even if we start off with relatively small amounts of money, getting into the investment habit early can reap rewards in the long term, making it easier to reach goals such as buying a first home or providing for our retirement.

If you are new to investing, read our beginner’s guide.

Capital at Risk. All investments carry a varying degree of risk and it’s important you understand the nature of these. The value of your investments can go down as well as up and you may get back less than you put in.

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How old do you have to be to start investing?

Keen young investors with savings that they can invest, will find that the primary limitation to their ambitions is: the law. You cannot hold shares or investment funds yourself until you are 18.

However, that does not mean they cannot benefit from starting at a younger age, as long as parents or guardians are involved too. Parents or guardians can open an account called a junior ISA (JISA) or even a pension.

Junior ISA

Parents can open a JISA at any point from birth until the age of 18, and this can be used to put money into a wide variety of individual shares or in investment funds, which hold shares in many different companies.

JISAs have a distinct benefit over other investment methods, as any gains grow free of tax, and the child is also able to manage the investment choices  themselves from the age of 16 – although they cannot take any money out until they are 18 apart from some exceptional circumstances.

There is a whole range of stocks and shares JISAs, some of which give you a choice of investment funds as well as individual shares. You might want to read: Are junior ISAs worth it?

With self-invested JISAs, parents can choose the investments held in the account themselves. With ready-made JISAs, the provider creates and manages the portfolio for the minor based on the individual preferences of the parent or guardian.

Check out our list of the top-rated self-invested JISAs here.

Pension

Very young people, under the age of 18, can even hold investments in a pension – as long as it is opened for them by a parent or guardian.

Here are a few things to know about pensions for kids:

  • Adults can save £2,880 into a pension for a child every year.
  • This is topped up to £3,600 in the form of tax relief from the government.
  • However, these are very long-term investments as you cannot gain access to the money until you are in your late fifties – and this age is likely to rise.

Find out more about pensions for children and whether you should start one here.

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Growing your money through investing

Getting started as an investor at a young age – for example, in your twenties – will mean that your money could have a long time in which to grow if you invest for the long term.

In most cases, money you invest will grow faster over longer periods of 5 years or more, than money held in a savings account or your ordinary bank account, even with interest rates on the rise.

Find out more: When will interest rates rise?

Doing your homework first

However, it is important to understand that the value of investments can fall as well as rise.

Whereas money in a bank account is not subject to the same degree of volatility – even if the rate of growth does not keep pace with the rate of inflation, eroding the purchasing power of your money.

Make sure you do some research to understand the potential risks of assets you buy. Read our guide to investing first.

Some people may want to take financial advice from an expert rather than using a DIY investment platform, particularly if they are new to investing.

Top investing tips

Consider setting up a regular, relatively small, payment every month to help ensure that you aren’t over-exposed should the stock market fall just as your money goes in.

It also means that you can buy shares at a series of different prices, potentially picking up more when they are cheap and fewer when they are expensive.

Another tip is to consider reinvesting any dividends paid to you by the companies you invest in. Doing this can help your money to grow faster and make a difference over the long term.

Where to invest tax-efficiently

Investing tax efficiently will also increase the value of your portfolio.

There are three tax efficient products you might want to think about:

1. A stocks and shares ISA

You can put £20,000 a year into a stocks and shares ISA once you turn 18 and it can grow tax free

2. A pension

You can also put £60,000 per year into a pension and the government will add back the tax due on the contribution. With a pension, though, it is worth considering that you will not be able to get hold of the money until much later.

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3. A Lifetime ISA

Younger people can also consider a Lifetime ISA. This can be opened by anyone up to the age of 40 and you can pay a maximum of £4,000 each year until you are 50.

This money can only be withdrawn as a deposit on your first house or at the age of 60 for later-life funding, but the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

Find out more in our article: Should I get a pension or a Lifetime ISA?

Where to start when investing

There are several ways in which new investors can make the process simpler.

When buying shares in single companies it’s important to understand the business itself and the sector to judge whether it is a good investment. But you could consider other types of investment such as index funds.

Here are the basics:

  • These funds automatically track the performance of an index, such as the FTSE 100.
  • They can be bought on investment platforms, which allow you to buy and sell funds or shares within tax-efficient wrappers such as an ISA or pension.
  • Funds give you access to different types of investment, not just shares in companies. For example, exchange-traded funds offer you exposure to the price of commodities such as gold or entire stock markets. You can also buy funds that invest in corporate bonds, or company debt.
  • Index funds tend to have lower expenses and fees than actively managed funds. Find out more: The impact of fees on investment returns.

You might want to read: How to invest £50,000.

A mix of different assets can help you create a well-diversified portfolio, which could give you a smoother ride when share prices fall, This is because different assets tend to move up and down at different times in the economic cycle.

For more information on how to get started, try the Times Money Mentor Beginner’s Guide to Investing. We explain the different steps you need to consider when getting started with an investment portfolio.