Do you aspire to be the next Warren Buffet, but not sure where to start? Do you often ask yourself, “Am I too young to start investing in stocks?”
If investing in stocks interests you, but its technicalities scare you, don’t worry! In this article, we will answer the question: “How old do you have to be to buy stocks”. In addition, we will give you some basic guidelines to help you understand more about investing.
Yes, you heard it right! Let’s start with the basics first, shall we?
Table of Contents
What is investing?
The act of allocating resources to create future income or profit is called investing. Simply put, investment recommends any means used for creating future salary, including bonds, stocks, land property, or a business.
If you invest money today in hopes of expecting a financial return, you’re called an investor.
For example, you can buy a house today and sell it later when the demand is high. That way, you will be able to resell it at a higher price.
Any of the contributions are made by the investor by appreciation, interest paid, or dividends. Appreciation means the valuation of the commodity has increased. If you bought a piece of jewelry for $100, and five years later it was worth $500, then that jewelry was priced. Securities will do the same — a stock issued by a corporation can increase its value over a period of years.
You probably paid interest rates on a loan that you took out, whether it was a school loan or a mortgage. The interest rates you paid to the lender is how the lender made money on the loan (or investment).
How old do you have to be to invest in stocks?
One question that comes to the mind of everyone who wants to start trading is knowing the legal stock trading age.
For most states, the minimum legal age to buy and own shares is 18 years.
However, in some states, you have to be over-18-years to start investing. For example, the minimum age requirement for trading in Alabama is 19 years; whereas, in Mississippi, it is 21 years.
Are you a minor and still want to try your hands on trading? Don’t get disappointed.
If you are below the age of 18 years, you can still invest in stocks. How? In that case, you will need your parent’s help to set up a custodial account for you. What does that mean? It simply means that the account will be legally held by the minor’s parents. However, minor owns and uses it. Moreover, only the minor can use the assets in the account, and not the parents.
How old do you have to be to invest in stocks in New York?
The minimum eligible age to invest on your own is 18.
How to buy stocks?
Before understanding how to buy stocks, let’s know what stocks actually are?
Stocks are shares traded on an open market organization. They speak to a bit of possession of a case on an organization’s profit and resources. Regardless of whether you state stock, value, or offers, everything implies something very similar.
When you purchase portions of an organization, you become a stockholder. As you get more stock, your proprietorship stake in the organization increases.
Here are some popular stocks in the US. Can you name them?
Popular stocks in the U.S.
- Facebook (NASDAQ: FB),
- Apple (NASDAQ: AAPL),
- Amazon (NASDAQ: AMZN),
- Netflix (NASDAQ: NFLX),
- Google (NASDAQ: GOOGL),
- Microsoft (NASDAQ: MSFT),
- Tesla (NASDAQ: TSLA).
Follow our step-by-step guide to know how to buy stocks.
Step 1 : Know the age requirement
Age is the first thing you need to check before buying stocks. Most brokers have 18 as the minimum age requirement for opening an account with them.
On the other hand, you can still buy stocks if you are under 18 years of age. In that case, you need to work in sync with your parents or guardians. This is known as passive investing as you are not directly involved in buying the stocks. Instead, it is your parents who buy stocks under your name.
Once you reach the minimum legal age, you can become the sole owner of the account opened by your parents on your behalf.
Step 2: Choose an online broker
Online brokers are good for the new and young investors. Online brokers help you trade with minimum risks and investments. Moreover, the fees for online brokerages depend on per-trade costs. As a result, you don’t have to pay a fixed management fee.
Hence, with online brokers, you can learn a lot. You can start investing in a nominal amount. And since less money is involved, you can take more risks to learn and grow.
You can find a list of online brokers by clicking here
Factors to consider when buying stocks:
It can be really challenging for new traders to invest in the stock market. And why not? Buying stocks is a skill that involves your money, time, and energy.
You must be curious to know how the stock market works? What are the factors you need to consider while buying stocks?
As new investors, it’s common to have these questions. Please consider the following factors to making any investment in the stock market.
Price is important to consider as trading is all about profit and loss. The amount you will invest in buying stock will determine the chance of you earning profit or losing the bet.
Who wants to end up investing in stocks whose price falls after a period? None. Just like it’s a waste to buy a product if you are not getting a good price, it’s the same with stocks. Even if you buy stocks of reputable brands like Apple, but the price is likely to fall in the future, remember it’s not the right time to invest.
Hold on, don’t get scared by the technical name. It simply means the net worth of a company or the true value of an asset. How can you calculate the intrinsic value of a company? In addition, it can be calculated by subtracting the liabilities from the company’s total assets. If you are a new investor, you can consult your advisor or broker to find out the intrinsic value of a company before investing in it.
The enterprise value helps in knowing the buyout price of a company. You can know the debt load of a company with its enterprise value. How can you find the enterprise value? You need to add a company’s debt, interests, and shares to its market cap. After that, you need to subtract the cash and the cash equivalents from the total amount. In this way, you can save yourself from buying a share with a good market cap, but a high debt load.
There are other factors involved in buying stocks and are not only limited to the ones mentioned above. However, for new investors, these points are beneficial to start with.
Why is there an age requirement in trading stocks?
Obviously, the response to that is simple: Stock exchange is a genuine agreement, and minors can’t sign agreements. An agreement with a minor is invalid. Basically, kids are assumed not to realize what they are doing.
Along these lines, a minor who signs an agreement can pick whether to respect or void it.
Investing for teens
The very first step to investing for teenagers and building up your resources is to become financially disciplined.
To do this, you’ve got to think about money the same way as rich people do. Though you could have grown up putting your pocket money in a piggy bank, rich people don’t put all their money in one place.
When you save money, you’re making good financial decisions. As you read more about each form of investment, you’re going to determine which ones would suit you better. Others are more dangerous than some. You could lose any or all of your earnings. Some investments help you get your money out quicker than others – that’s called liquidity.
Investments offer varying return rates. You have to consider all of these considerations before you put your capital into some projects.
It’s wise to split your funds into different forms of investing. It’s called diversification. When you put your money in different ways, you reduce your risk. While one investment may lose money, the others may not.
As we discussed, you don’t necessarily have to be 18 years of age to invest in stocks. You can fulfill your dream of trading even if you are a minor. All you need is to collaborate with your parents or guardians, and take some advice from online brokers. And once you reach the legal age, you can hold the same account under your name.
Interesting, isn’t it? Investing in the stock market is a perfect way to earn some extra money. It also helps you in handling risks better. However, with 3 simple factors — price, intrinsic value, and enterprise value, you can minimize your chances of loss.
Learning how to buy stocks might take a little longer, but you’re going to be on your way to building your assets when you get the hang of it. Read several investing pages, compare different brokers and stock-trading applications, and diversify the investments to protect against risk. Have your risk profile and financial targets in mind and you will be able to call yourself an investor before you know it.
The younger you start learning stocks, the better the final returns –Well, that’s an investment already!
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