How To Invest Under Age 18

Video how to invest when your under 18

What are the advantages of investing under 18? First, you will get ahead of all your peers. While your friends worry about affording the latest device or fashion, you will be investing in their manufacturers. While your classmates set aside their holiday gift money for a new game system, you will be stashing money in financial assets like stock and mutual funds.

Investment principles learned early will stay with you forever. When you appreciate how money grows by earning interest on interest (also known as compounding) and investing long-term in stocks and mutual funds, you will realize that a bit of money invested today can produce much more tomorrow.

Two very important factors that determine how teenagers under 18 years old (or minors) can invest are:

  1. Teens under 18 can’t invest on their own — they must do so through custodial accounts supervised by adults; and

  2. Teens generally have very little money so it limits the variety of investments they can make; (for example, they generally can’t invest in mutual funds because many mutual funds require huge investments of thousands of dollars).

What Teens Will Learn about Investing

This article explains how to invest as a teenager by addressing the above mentioned obstacles.

Along the way, we discuss custodial accounts for minors and affordable investments, including stocks, exchange-traded funds (ETFs), United States Savings Bonds, and Certificates of Deposits (CDs). In addition, it briefly addresses the issue of teen investors and taxes — a subject often ignored by minors investing in the stock market and other financial assets.

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Remember, we are not financial advisors, so you should consult your parents or professional money advisors about investing in any assets. All investments involve a certain amount of risk that should not be ignored.

Before we get into investing under 18, you should consider registering for the TeenVestor Stock Certification Course.

As you are preparing to invest as a teenager, you should also check out our article on 7 Steps to Investing as a Teenager, which outlines the following steps in your journey to becoming a prudent investor:

  1. Gain Basic Knowledge – go to sites that specialize in teaching teens about stocks basics (see: www.teenvestor.com/teen-websites)

  2. Stick to Your Interests at the Beginning – looking for companies that suit your interest will keep you engaged; later, you can expand your investment universe.

  3. Find out Exactly What Companies Do – you should know the business in which your company of interest is engaged.

  4. Get Basic/Simple Financial Data – understanding basic financial measures will help you avoid serious investment mistakes.

  5. Experiment With Dummy, Mock, Virtual, or Fake Portfolios – several companies offer free dummy trading portfolio platforms to help you step gently into stock investing without risking your money.

  6. Choose an Appropriate Online Broker (Offering Custodial Accounts) – online brokers with no fees and no minimum are ideal.

  7. Avoid Scams-– stay away from penny stocks or anyone who promises returns that are too good to be true.

Investing When You are Almost Broke

As I mentioned earlier, one of the main obstacles for teens interested in investing is having the cash to do so. However, this problem for most teen investors has started to disappear because you can now start investing with as little as $1. That’s right — financial innovation in the stock market allows investors very little money because you can now buy a fraction of a share, as you will learn later in this article. But teens who want to invest in the stock market are not going to find investing only $1 appealing.

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So, let’s explore other ways to get money for investing in stocks. If you have a job — whether it is money for chores around the house or money from an actual job — you can set aside money periodically to invest in the stock market.

However, if you are not fortunate enough to generate a source of cash for investing in the stock market, you need to find other ways to get money.

If you are lucky enough to get a regular allowance from your parents, you can allocate a piece of it for investing in the stock market. You can even ask them to increase the allowance amount so that you can put the increased amount into stocks.

Grandparents are always keen to encourage financial responsibility amongst their grandkids, so you can start your money-raising campaign with them.

If you have relatives that periodically give you cash gifts, let them know that you intend to put some of that money into stocks. Signaling your intentions may even encourage them to provide you with more if they know you are responsible with the money.

If you find that you still don’t have enough money to invest or any money at all, don’t fret. You can still learn the basics of investing with dummy portfolios which I’ll discuss later.

Custodial Accounts for Teen Investors

How old do you have to be to invest in stocks on your own? If you are under 18, you cannot own stocks, mutual funds, and other financial assets outright. As a minor, you can make investments only under the supervision of your parent (or an adult) through a custodial account. Your parent will have to sign you up for a custodial account offered by an online broker.

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Without boring you with unnecessary details, all you have to know is that two types of custodial accounts are used for establishing investment accounts for anyone considered a minor (i.e., under 18).