To start investing in stocks on their own, your kid will need a brokerage account, and they must be at least 18 years old to open one. They can start earlier than this, but they’ll need a parent or guardian to open a custodial account for them. What is a custodial account?
Full Answer
How to invest in individual stocks for kids?
Within their brokerage account, your kids will be able to invest in individual stocks, as well as mutual funds, index funds and exchange-traded funds. 1. Help them pick one or two individual stocks.
How many teenagers are trading stocks?
Dintenfass said during the pilot program about 30% of teenagers were trading stocks. The group that traded, invested in bigger equities like the S&P 500 index fund, Apple and Tesla.
What are the best stocks to buy to help your kids succeed?
One of the best stocks to buy and introduce to your child is Happy Meal creator McDonald's Corporation (NYSE: MCD). If your kids can't get enough of McDonald's Corporation (NYSE: MCD) meals, consider making them Golden Arches' shareholders.
Should young investors be allowed to trade stocks?
Young investors are not allowed to trade options and are not allowed to trade on margin, according to Fidelity chief marketing officer David Dintenfass. Dintenfass said during the pilot program about 30% of teenagers were trading stocks.
There are a number of ways you can invest even as a teenager
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How Old Do You Have To Be to Invest In Stocks?
Before you start calling up the stock brokers we've reviewed here at Investor Junkie, be aware that there's one basic problem with being a teenage investor: You have to be at least 18 to start investing in stocks.
How Custodial Accounts Work
A parent or guardian opens a custodial account for you and then “gifts” funds into it. For 2020, up to $15,000 can be gifted into a custodial account.
Learn to Diversify Your Custodial Account
Once you get a custodial taxable or IRA account, you need to decide what kind of investments to put in there.
Choose the Right Custodial IRA Plan
If you're investing for the long game (and thanks to compound interest, this is an awesome time to start), you can get an individual retirement account set up. These are known as IRAs, and not many people know that you can get one of these when you're a teenager.
Custodial IRAs Revert to the Teenager Upon Reaching Legal Age
While the teenager is considered a minor, the IRA account is in the parent or guardian's name. But upon reaching age 18 or 21, account ownership converts to the teenager depending on where you live.
Consider Taxes & Fees
Your account will not be tax-exempt. But it will be taxed at your tax rate. This is usually a good thing since you'll probably have a much lower rate than your parents.
1. Teach teens the basics of investing
Help them understand investing terminology and concepts. Start by breaking complicated words and topics down into simple terms. For instance: A bond is just a loan that you, the investor, make to a company, a government, or government-sponsored entity.
2. Start with companies your teens know
Challenge teens to design a portfolio, or collection, of companies they know. Ask them questions like: What clothes or shoes do you wear? What are your favorite tech devices? What streaming services do you use?
3. Stress the importance of diversification
Ask your teen what they think about the old expression, "Don't put all of your eggs in one basket." You want them to understand that diversifying their investments by buying many different stocks can help guard against "losing your eggs" if all your money is in one stock that goes down in value.
4. Teach teens the benefits of a "buy and hold" strategy
It's sometimes easy for teens to think that investing in stocks that are a click away is like playing a video game. Investing is not a game—it involves real money and real risks. In the short term, markets go up and down, often unpredictably. In the longer term, however, the stock market has historically moved upward.
5. Teach patience: Show teens how compounding works over time
Albert Einstein said that compound interest is "the most powerful force in the universe." Our kids have time on their side, and thus the ability to invest over many years. Encourage your teens to find an interest calculator online and see what regular investing at reasonable returns can yield.
Make it real
To help solidify the basics of investing, try giving your teen some companies and industries to watch and research. Help them make sense of what they discover along the way. If you're comfortable doing so, think about letting your teen tag along with you as you monitor your own investments.
Next steps to consider
See content available to help teens understand complicated financial concepts.
Decide on an account type
To get your kids started investing, you should first decide which investment account is best for them. That decision largely hinges on whether they have earned income.
Choose the right broker
No matter which type of brokerage account you decide to open for your kids, you'll need to start by finding a broker. The best investment accounts for kids charge no account fees and have no minimum initial deposit. This gives your kids the chance to start investing with a small amount of money.
Open the account
You can open a custodial account — both a standard brokerage account and a Roth IRA — for your child in under 15 minutes or so; at most brokers, the entire process is completed online.
Help your kid decide what to invest in
Once the custodial account is open and funded, the real fun begins: Investing the money.
Evaluate Your Debt Before Investing
Not all debts are created equal. Before you invest a penny, take a close look at your debts.
Youth Is an Investing Superpower
With time on your side, you have an incredible advantage over your older counterparts. That advantage is called compounding.
A Few Pitfalls to Avoid as a Young Investor
When I first graduated college, I fell in love with the idea of retiring young. I wanted to retire by 30. (Spoiler alert: It didn’t happen.)
Final Word
As a young person, you’re in a particularly strong position to get a head start on wealth building. While your friends are pumping every penny into things like flashy cars and going out every night, you can start creating stealth wealth for yourself.
A step-by-step investing guide for teens and their parents
Matthew is a senior energy and materials specialist with The Motley Fool. He graduated from Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries: Follow @matthewdilallo
5 Steps to investing as a teenager
It's easy for anyone, including teenagers, to start investing. Just follow these five steps, and you'll be on your way to an exciting lifetime adventure:
How parents can start investing for their teens
Parents can play a vital role in helping their teens to start investing. The best way they can do that is to encourage them during every step of the process. If you're already an experienced investor, show them the ropes. If not, learn alongside them.
Saving for Retirement
If you are young, your greatest financial asset is time—and compound interest. At this point in your life, your primary investment objective for your long-term savings should be growth. Investors in their 20s will have at least 40 years over which to accumulate retirement savings.
401 (k)s and IRAs
IRAs and employer-sponsored retirement plans are the best places to start when saving for retirement.
Buying a Home
Traditional financial wisdom has usually dictated that a house is one of the best investments you can buy, but whether or not this is true depends upon several variables.
Saving for College
If you are still trying to get through school or have not yet started, then there are several other vehicles for you to consider socking money into:
Short-Term Investments
The alternatives for your short-term cash, such as an emergency fund, are pretty much the same regardless of your age. Money market funds, savings accounts, and short-term CDs can all provide safety and liquidity for your idle cash.
The Bottom Line
The most important decision you can make as a young person is to get into the habit of saving regularly. What you invest in matters less than the fact that you have decided to invest. The right investments for you are going to depend largely upon your personal investment objectives, risk tolerance, and time horizon.
A first of its kind
A brokerage account owned by teens 13 to 17 that's built to start their investing journey. They can trade most US stocks, ETFs, and Fidelity mutual funds in their own accounts.
Ongoing parental oversight
Parents/guardians who currently have a Fidelity account can open this account with their 13 to 17 year old. At age 18, your teen's account will be transitioned to a retail brokerage account for free.
Youth Account features
Teens can make purchases and cash withdrawals with their free debit card, or using a payment app like PayPal or Venmo. And, you can view their transactions when you need to.
Youth Learning Center
A lifetime of smart money decisions starts with education. So, we’ve created a library of jargon-free 101-level educational content to help teens understand complicated financial concepts. Your teen can find the Youth Learning Center in their app, or you can visit our Teens and Money page.
Talking to your kids about money
It's not always easy to talk about money—even with family. So we've created a series of articles that can help facilitate money conversations with kids.
