While you need to be at least 18 years old in most states to open your own brokerage account, there is technically no minimum age requirement for buying stocks. If you are under the legal age of majority in your state, there are several different types of accounts that you can open with the help of a parent or guardian, through which you can start investing in stocks, index funds, exchange-traded funds, etc. at virtually any age.
Below, we explain the benefits of investing while young, and we provide the minimum age requirements for opening brokerage accounts in each state, as well as other investment options for minors.
Reasons to Invest While Young
The main benefit of starting to invest while young is compound interest. Once you start investing and earning money, you can then re-invest and earn more money from the additional amount you earned. You can repeat this process and see exponential growth over a long period of time.
For example, if you invest $100 into a single stock with an 8% yearly investment earning, without adding any additional funds to your investment — simply re-investing your earnings — you will more than double your initial investment in 10 years and quadruple it in less than 20. Adding more money to your investment (or starting with a higher principal amount) will lead to even more growth.
Starting to invest at a young age can also help develop financial literacy and a positive money mindset. It gives you the opportunity to learn about the economy, the value of money, and the benefits of smart money management.
Age Requirements By State
In most states, you need to be at least 18 years old to open a brokerage account on your own, since this is the age at which you can enter into a legal contract. The table below lists the age requirements by state for how old you need to be to open a brokerage account and begin investing without the help of a parent or guardian.
How to Begin Investing While Young
There are several ways you can begin investing if you’re still considered a minor in your state and are unable to open an investment account on your own. Below, we list each method and explain how to get started.
Invest Within a Custodial Account (UTMA/UGMA)
Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are both accounts that you can open at virtually any age with a parent or guardian. These are investment accounts wherein you buy stocks or any type of investment — the account type you can open will depend on your state.
With these types of accounts, your parent or guardian is assigned as the account owner, and you are the beneficial owner. Once you reach the age of majority in your state, you automatically become the sole owner, and you can name your parent/guardian as a beneficiary if you wish. You don’t have to sell anything once you reach legal age — it is a fairly smooth transition.
Invest Within a Roth IRA
You can also start a Roth IRA at any age with the help of a guardian. You put in money/income that has already been taxed, then it grows tax-free. For example, you can invest $100 into a Roth IRA, and you’ve already paid taxes for the $100. Over time, it will grow to $1,000, untaxed. If you had to pay taxes on the $1,000, you would have to pay much more.
There are several benefits to opening a Roth IRA while young. The funds can be used for educational expenses, or you can use the money to buy a first home. You can take the principal out of the account whenever you like. Note, however, that you must be at least 59 1/2 to withdraw your investment income for non-educational or home expenses.
For more about investing in a Roth IRA, we explain the benefits of fully funding your Roth IRA.
Wait to Invest in the Stock Market
The reasoning behind the age of majority laws for investing is that officials believe younger people are more likely to make poor investing decisions. If you’re okay with waiting (or if your parent/guardian won’t consent to opening a custodial account for you), you can still save your money and wait until you reach the age of majority in your state to begin investing.
Investing is a long-term wealth-building strategy, so if you have to wait a couple of years to begin investing (especially if you are starting with a fairly small principal amount), you are not missing out on any significant returns right away. You can focus on earning and saving money until you are able to begin investing.
How to Begin Investing
In general, it is best to choose a reputable brokerage firm and diversify your investments with things like mutual funds and exchange-traded funds as opposed to investing in individual stocks, which can be volatile. You can look for funds with low fees and a history of good performance so you can be sure that your money will grow over time.
When you’re ready to begin investing, find out more about the types of investments you can make and how to invest in our beginners’ guide to the stock market.