How Old Do You Have to Be to Invest in Stocks? [Age to Invest]

The younger you start investing for your future, the better.

That’s not just some empty, general statement—math bears it out. The longer you have to invest, the more compounding works to your advantage, and thus the more you can take a little money and turn it into a lot more money.

Not to mention: Those who start investing when they’re young can learn valuable lessons that will make them better investors once they become adults.

But … how old do you have to be to invest in stocks (and other investments, for that matter)?

The answer isn’t perfectly straightforward, so today, we’re going to make it simple for you. We’ll also discuss the various types of investment accounts for kids (and what age they can use them), the best types of investments that children can hold in them, and other important considerations when it comes to minors and investing.

How Old Do You Have to Be to Buy Stocks?

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If you’re under 18 and want to open an individual brokerage account, IRA, or other type of investment account all by your lonesome, we’re sorry. You have to be at least 18 years old to tackle everything on your own.

But several accounts allow minors to invest if they have the help of a parent, guardian, or other adult.

One of the biggest differences you’ll find among these accounts has to do with whether the minor simply owns the investments in the account, or whether they can also decide what those investments are.

Only one account type lets a minor own the investments and gives them the right to an equal say in what investments they hold. With the other account types, the minor owns the assets but the adult ultimately makes investment decisions—though they certainly have the choice to let the minor weigh in on those decisions.

So, let’s talk about the steps a minor would need to take to invest, and take a closer look at those account types and how age plays a role.

How to Start Investing as a Kid or Teen

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Follow the steps below to start investing, whether you’re a child or a teenager.

1. Open an Investment Account

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Several types of investment accounts can hold investments for minors. The accounts we’re going to focus on right now are those that kids and teens would be most interested in opening. (If you’re a parent and want to know about more accounts you can open on your child’s behalf, we’ll tackle that later on in the article.)

The three best investment accounts for kids and teens are joint brokerage accounts, custodial brokerage accounts, and custodial retirement accounts.

Let’s take a look at each to determine which one is best for you:

Account Type #1: Jointly Owned Brokerage Accounts

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• Who owns the investments? Minor and adult
• Who makes the investment choices? Minor and adult
• Minimum age of minor: None in theory, but account providers might impose a minimum age

The standard investment account for buying and selling stocks and funds is an individual brokerage account. When you own a brokerage account, you own the account and all the investments therein, and you make all of the investment decisions.

However, a joint brokerage account allows two or more people to sit on the account’s title and own all assets within the account.

These accounts usually are owned by two spouses, or two or more individuals who share financial goals (unmarried partners or business partners). But they can also be opened between two or more family members—say, a parent and a child.

To be clear: Any adult can open a joint brokerage account for a minor—parents, sure, but other family, guardians, even trusted adult friends. And whoever owns the account not only jointly owns the investments, but also is allowed to make decisions on behalf of the account. (So, for instance, an adult could open a joint brokerage account for their newborn and make all of the decisions until they’re a teen, then allow the teen to start making an increasing percent of the decisions over time.)

The adult will be responsible for paying capital gains taxes, which vary depending on factors such as your federal tax bracket and how long you’ve held the investment. But joint brokerage accounts are the most flexible type of investment account, typically providing the widest array of investing options.

The good news: Tons of brokers offer joint brokerage accounts. In fact, many investing apps for kids allow you to open a joint account.

Related: 10 Best Debit Cards for Teens to Become Money Savvy

Account Type #2: Custodial Accounts

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• Who owns the investments? Minor
• Who makes the investment choices? Adult
• Minimum age of minor: None in theory, but account providers might impose a minimum age

A custodial account is a type of financial account that an adult maintains for another person, usually a child. Many parents open a custodial brokerage account to invest for their teens.

A custodian (any adult, but typically a parent or guardian) must open, and manage the investments inside of, the account. However, the minor actually owns the cash and investments inside of the account. The custodian can only spend from the account on things that benefit from the minor. Then at the age of majority—which is set by state, but typically is 18 or 21—the minor gains full access to (and control over) the investments as a young adult.

These accounts provide some tax advantages by shielding a certain amount of unearned income from taxation each year while allowing another portion to remain subject to taxes only at the child’s tax rate (this is called the “kiddie tax”). Above this, the parent’s tax rate absorbs any income in excess of these limits.

There are two main types of custodial account: Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA). Let’s quickly look at the two main differences between UGMA and UTMA:

1. A UGMA custodial account can be used to hold only strictly financial assets, including (but not limited to) stocks, bonds, mutual funds, exchange-traded funds (ETFs) and insurance products. UTMA accounts can hold those assets, but also any property—say, real estate or cars. But typically, higher-risk investment choices—options, futures, trading on margin—are disallowed from both types of account.
2. The UGMA custodial account structure has been adopted in all 50 states. However, only 48 states have adopted UTMA custodial accounts. (South Carolina and Vermont are the exceptions.)

Not every institution that offers a standard brokerage account offers a custodial account, too. But a few major names in the financial space deliver this option.

Start with index funds in an Acorns Early Account

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• Available: Sign up here
• Price: $12/mo. for Acorns Premium (Provides access to Acorns Early custodial accounts)

Acorns is an investing app geared toward minors, young adults and millennials by offering “Round-Ups”: The app rounds up purchases made on linked debit and credit cards to the nearest dollar, investing the difference on your behalf.

For example, if you purchase a coffee for $2.60 on a linked credit card, Acorns automatically rounds this charge up to $3.00 and puts the 40-cent difference aside. Once those Round-Ups reach at least $5, they can be transferred to your Acorns account to be invested. Users have seen an average of $30 per month invested this way and makes the service one of the best investments for beginners who are looking to get started with saving and investing.

The investing app allows you to create a custodial investment account for minors through their product Acorns Early, which is available under the Premium tier.

Making regular contributions over long periods of time can go a long way toward building lifelong wealth. Using an investing app like Acorns could also be the best way to invest $1,000 for a child.

Acorns has the following subscription options:

• Acorns Personal ($3 per month): Includes an Acorns Invest investment account, as well as Acorns Later for tax-advantaged investment options such as Roth IRAs. Also includes Acorns Checking, a bank account that has no account fees, lets you withdraw fee-free from more than 55,000 ATMs nationwide, and Smart Deposit, which allows you to automatically invest a bit of each paycheck into your Acorns accounts.
• Acorns Personal Plus ($6 per month): Everything in Acorns Personal (Acorns Invest, Later, and Checking), plus Premium Education, which are live onboarding sessions covering account setup, Round-Ups, setting up recurring investments, and more; Emergency Fund; and a 25% bonus on Acorns Earn rewards (up to $200 per month).
• Acorns Premium ($12 per month): Everything in Personal Plus, plus Acorns Early, which allows you to open a custodial investment account for your child so you can begin investing for them while they’re a minor; custom portfolios that allow you to hold individual stocks; live Q&As with financial experts; a 50% match on Acorns Earn rewards (up to $200 per month); $10,000 in life insurance; even the ability to set up a will for free.

Personal Plus and Premium subscribers also get access to a powerful way to accelerate their savings: Later Match. While most people are aware that employers will sometimes match funds you contribute to your 401(k), “matches” are virtually unheard of in retirement accounts like IRAs, where there’s no employer to kick in extra cash. However, Acorns itself will match 1% or 3% on new contributions to IRAs for Personal Plus and Premium subscribers, respectively. 

Learn more in our Acorns review.

Related: Best Stock Trading Apps for Beginners

Account Type #3: Custodial Roth IRAs

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• Who owns the investments? Minor
• Who makes the investment choices? Adult
• Minimum age of minor: None in theory, but account providers might impose a minimum age

Have you worked a summer job as a teen? Done some babysitting? Tutored some classmates for pay? If so, you’ve got what the IRS considers “earned income.” That means, in 2023, you can contribute the lesser of your earned income or $6,500 per year toward your retirement and invest in a tax-advantaged manner.

Of course, if you’re that young, you probably don’t have access to a workplace retirement account. That means you can really only contribute to an individual retirement account (IRA).

An IRA is a tax-advantaged retirement account that allows you to save money for retirement. You set up an IRA at a financial institution and make contributions that you can invest in a variety of investment choices. Of course, if you’re young, you’ll need a custodial IRA.

Custodial or not, you have two choices of IRA:

• Traditional IRA: These retirement accounts allow you to contribute “pre-tax” dollars today. You only pay taxes on the money once you withdraw it, which you are allowed to do without penalty once you retire.
• Roth IRA: These work in the opposite manner. You can only contribute to a Roth IRA with earnings that you have already paid taxes on. However, once you contribute that money, that’s it—it grows tax-free while it’s in your account, nor do you pay taxes once you withdraw it. (But with a few exceptions, you’ll pay a penalty if you withdraw earnings before age 59½.)

Since you’re young (and likely don’t earn all that much), you probably pay very little in taxes, or you might not pay taxes at all. As a result, you’d want to lock in the low tax rates you pay now by making after-tax retirement account contributions to a custodial Roth IRA.

And the best part about contributing to a custodial Roth IRA as a teenager? Years—no, decades—of compounding returns.

Related: Best Rollover IRAs [Where to Rollover a Workplace Retirement Plan]

E*Trade (Our Top Pick for Custodial IRAs)

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• Available: Sign up here
• Platforms: Web, mobile app (Apple iOS, Android)

Most people know E*Trade as one of the leading providers of individual brokerage accounts, but you can also put the powerful platform to work saving for your child’s future.

E*Trade’s IRA for Minors offering allows you to open up a traditional custodial IRA or a custodial Roth IRA for children under age 18 who have earned income. Within the account, you can build a personalized portfolio through thousands of stocks, bonds, ETFs, and mutual funds, or you can have E*Trade select your holdings for you through its Core Portfolio robo-advisory service.

Just like with its individual brokerage accounts, E*Trade custodial IRAs offer zero-commission stock, ETF, and options trading. It also has a leg up on some platforms by offering $0-commission mutual fund trading.

And if you want to learn more about investing—or want your young one to learn alongside you—E*Trade also boasts educational resources, including articles, videos, classes, monthly webinars, and even live events.

Visit E*Trade to learn more or sign up today.

Related: Best Debit Cards for Kids

2. Select Suitable Investments

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Because kids and young adults have long investment horizons, the most suitable investments are growth-oriented ones. At such a young age, you don’t need to play it safe with bonds and other conservative investments.

These are the three main investments you’ll want to consider:

Individual stocks

When you buy individual stocks, you’re buying a tiny fraction of ownership in a company. And typically, if the company does well, your stock will grow in value. But there is risk—if a company doesn’t perform well, your stock could lose value.

If you ask us, investing in the stock market is pretty exciting. You don’t just blindly invest money and hope it grows—you can learn about a company, read about it in the news, and talk about it with your friends.

Related: Best Stocks for Kids to Own for Their Portfolio

Mutual funds

A mutual fund is a big pool of money that is used to buy many investments at once. So when you buy into a mutual fund, you’re not buying one stock—you’re buying parts of dozens, hundreds, or even thousands of stocks (or bonds or other investments)! This can be a safer way to invest than buying individual stock.

Let’s say you invest $1,000 in Stock X, and Stock X suddenly loses a lot of value—well, your whole $1,000 investment is at risk. But if you invest $1,000 in a mutual fund that holds Stock X and a bunch of other stocks, and Stock X suddenly loses a lot of value, it will have a relatively smaller impact on your $1,000 because your investment is spread across many stocks, not just Stock X.

When you own a mutual fund, you typically pay an annual fee (taken directly out of the fund’s performance). Mutual funds charge different fees, so you’ll want to compare funds to make sure you’re getting your money’s worth.

Related: Best SEP IRA Accounts + Providers

Exchange-traded funds (ETFs)

Exchange-traded funds (ETFs) are similar to mutual funds in that they’re diversified (you get to invest in a lot of things at once), but they have some differences. For one, exchange-traded funds trade like stocks—on an exchange, throughout the trading day—where mutual funds only settle once per day, after the trading day.

Also, most (but not all) mutual funds are actively managed. This means human managers are deciding what, and when, to buy and sell. However, most (but not all) ETFs are passively managed and typically referred to as “index funds.” An index is a collection of stocks, bonds, or other investments that are governed by rules determining what can or can’t be included. An index fund simply “tracks” the index by holding what the rules say it can hold.

Index funds tend to be cheaper than actively managed funds, and they often outperform human managers. So, index funds make a lot of sense for teens who want to invest $1,000 across a wide selection of stocks, bonds, and other investments.

Related: Best Fidelity Exchange-Traded Funds (ETFs)

3. Start Investing at an Early Age

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The younger you are when you start investing, the better. The advantages of investing young include the following:

Compounding

Whether you invest money in custodial brokerage accounts, joint brokerage accounts, or a custodial IRA, you benefit from compounding. Here’s how it works: If you put, say, $1,000 into an interest-bearing savings account or an investment account, you make money on that original $1,000. Those new earnings will eventually produce their own earnings, powering a cycle where your money grows more powerfully over time.

Compounding example

Let’s say you invest $1,000 in a savings account that earns a 4.0% APY. By the end of one year, you would have earned $40 ($1,000 * 0.04%), so your account would have $1,040.

However, if you keep that money in the account for another year, you’re earning 4.0% not on your original $1,000, but the additional $40 you earned. By the end of a second year, you would have earned another $41.60 ($1,040 * 0.04%), bringing your account balance to $1,081.60.

Building lifelong habits

If you want to have enough money for big events down the road—a new car, a new home, a good life once you’re retired—you need to invest your money. That starts with developing good saving habits, so you’re always willing to set aside money for those long-term goals. Once you become an adult, investing should become a part of your budget, just like rent, utilities, and groceries.

More time to adjust

Stocks generally rise over time, but it doesn’t just head higher in a perfectly straight line! The stock market goes through cycles where it rises, and cycles where it falls. Also, your financial situation won’t always be the same—you might go through a few times when you’re able to earn a lot and spend a little, and other times where you can’t earn much but have to spend more.

However, if you start investing young, you’ll have more time to wait out these market cycles, and you’ll have more flexibility to change your savings plans as necessary.

Related: Best Investing Research & Stock Analysis Websites

What Investment Accounts Can You Use to Invest for Your Kids?

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We mentioned above that there are certain types of investment accounts that make more sense to just open on your child’s behalf long before they can start becoming interested in investing.

The options below are excellent investment accounts to save on behalf of a child. Note that some of these accounts have restrictions on how the funds can be used.

529 Plans

• Who owns the investments? Adult
• Who makes the investment choices? Adult
• Minimum age of minor: None in theory, but account providers might impose a minimum age

A 529 plan is a tax-advantaged investment account designed to help adults save money for a child’s future education expenses. “Qualified expenses” include tuition, fees, necessary technology (computer, printer, etc.), room and board (with at least half-time enrollment), books, student loan payments, and more. And while these plans previously could only be used for college expenses, they can now be used for K-12 tuition costs, trade schools, and more.

Any adult can open a 529 account for a minor. You contribute money that you’ve already paid taxes on. Then account funds grow tax-free until you need to withdraw them for educational uses. The adult is both the owner of the assets and the person in charge of investment decisions, but the funds ultimately must be spent on the beneficiary (the child).

Any money withdrawn for non-qualified expenses is taxed and a 10% penalty is charged. However, the penalty can be waived if the beneficiary attends a U.S. military academy, dies, becomes disabled, or earns a tax-free scholarship.

Should a child you expected to attend college chooses not to, you can change the beneficiary to another qualifying family member (in other words, pay another child’s college education expenses) without tax consequences. Alternatively, you could use the money to pay off your own financial aid or further your education.

Education Savings Accounts (ESA)

• Who owns the investments? Adult
• Who makes the investment choices? Adult
• Minimum age of minor: None in theory, but account providers might impose a minimum age

An education savings account (ESA) has many names. It used to be called an “education IRA,” but nowadays, it’s typically referred to as a Coverdell, Coverdell ESA, or just plain ol’ ESA. Whatever you call it, it’s a custodial account or trust that you create to save money for your children’s elementary, secondary, or college expenses.

Any adult can contribute to these funds. You contribute money that you’ve already paid taxes on. Account funds can grow tax-free in the account, but withdrawals must be used for qualified educational expenses before age 30.

Single filers with modified adjusted gross income (MAGI) of less than $95,000, and married filing jointly filers with MAGI of less than $190,000, can fully contribute to ESAs. There’s a phaseout to contributions between $95,000 to $110,000 for single filers, and $190,000 to $220,000 for married filing jointly filers.

There are no minimum balance requirements, but the maximum contribution is $2,000 per student per year until age 18. For a Special Needs ESA, contributions can continue after age 18.

Parent’s Brokerage Account

• Who owns the investments? Adult
• Who makes the investment choices? Adult
• Minimum age of minor: Not applicable

Parents can always use their own standard brokerage account to invest for their children, too.

The benefit here is complete flexibility. Most online stock brokers have no minimum account balance requirement, there is no contribution limit for brokerage accounts, and the money can be used toward any expenses.

The downside to this type of investment account? Like with a joint brokerage account, there are no tax advantages. (Conversely, a 529 or ESA state-sponsored investment account allows your earnings to grow tax-free.)

Related: Best Investment Accounts to Open

What Is the Minimum Age to Invest?

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To recap: The minimum age to invest in stocks and other investments completely on your own is 18 years old. However, minors are allowed to make investment decisions within a joint brokerage account shared with an adult. And even with other types of accounts, adults can always discuss investment decisions with a minor to help with their financial education.

Furthermore, the minor will actually own stocks and other investments through most of the various accounts mentioned above.