Investing savvy comes with no age restrictions, but the same cannot be said for many types of investment accounts. In general, brokers (including Acorns) set the minimum age for opening a brokerage account at 18 years old, when people can legally enter a contract on their own. But younger would-be investors have other options to get started sooner.
I’m old enough for a brokerage account. How can I get started?
You can go to your broker of choice, whether it be online or in person, and open an account. You’ll need to provide identifying information, such as your name, address, email address, birthday, social security number, and other details. You might also be asked about your investing experience and financial goals.
Whether you’ll have to fund the account right away, and with how much money, depends on the account you choose. Ultimately, though, you will have to link your brokerage account to a checking or savings account.
How do I choose a broker?
You have a lot of factors to take into consideration when choosing a broker, but it all boils down to figuring out your own investment style and financial needs. In order to do that, here are some questions you might ask yourself:
Do you think you’ll be making a lot of trades, or will you prefer to buy and hold for as long as possible (which is a passive investing strategy)?
How hands-on do you want to be? Would you prefer your broker to handle most of the heavy lifting, or would you like to operate more independently?
Are you already extremely knowledgeable when it comes to all things investing and finances? Or could you use some extra guidance, whether through online resources or by working directly with an individual expert or two?
If anything comes up, are you comfortable communicating mostly online to sort things out? Or will you want to talk to a real live person or have the option to visit a physical location?
You also want to look at what your potential brokers have to offer. Definitely check out all the fees they charge, such as trading fees and annual fees. Look into whether you need to maintain a specified minimum balance. Also see what kinds of investments—stocks, bonds, mutual funds, exchange-traded funds (ETFs), et al.—you’ll get to choose from, as well as what specific investments are available and under what terms. Some brokers charge a certain amount each time you buy or sell something, but they might also offer a list of funds and other types of investments that come with no transaction fees. For example, Vanguard charges $2 to $20 per online-executed stock trade if your account holds less than $1 million, but there’s no fee to trade the firm’s many mutual funds and ETFs.
At Acorns, we don’t charge transaction fees. You pay $3 or $5 a month, depending on your financial goals with us. We set you up with a custom portfolio of ETFs to match your investing style and needs, and you can let us worry about making adjustments as necessary over time.
What can people do to start investing before they turn 18?
Plenty. What people probably think of first when it comes to investing for minors are custodial accounts. The Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts allow parents to save and invest in a child’s name. It works pretty much like a standard brokerage account. Anyone can contribute, and there are no contribution limits. You’re able to buy and sell investments, with the details of doing so depending on your broker. Then, when the minor is no longer considered a minor—which happens at either age 18 or 21, depending on the investor’s state of residence—they get full control of the account.
Another option is a 529 savings plan, which is a state-sponsored investment account designed for the financial goal of paying for college and other educational costs. An adult can open a 529 plan and assign a child as the beneficiary who will be able to use the funds to cover tuition, fees, room and board as well as other qualified costs for college or even private primary and secondary schools.
The account holder can buy and sell investments within the account, options of which are typically far more limited than within a standard brokerage account. Often, you’re likely to go with a target-date fund, aimed around the child’s projected first year of college. Bonus: You can score a nice tax break when the funds are used for qualified educational costs. Downside: If you use the money for anything else, you’ll get hit with a heavy penalty on top of taxes.
Kids who earn income can also contribute to a Roth IRA. They’ll still need a grown-up to open and manage the account legally. But they’ll get all the retirement-saving benefits afforded to account holders of all ages, i.e. tax-free growth and withdrawals in retirement. Plus, starting at such a young age means decades and decades of compounding interest. That’s a win-win.
One catch is that they can only contribute as much as they earn. So even though the maximum contribution limit for a Roth IRA in 2019 is $6,000, if a child (or anyone of any age, really) only earns, say, $1,000 for the year in babysitting money, they can only put $1,000 into their Roth.
Even with such minor limitations, starting to invest as soon as possible is a major accomplishment. So now that you understand all the legal age restrictions on investing, our advice is simple: No matter how young or old you are, the best time to start investing is right now. The sooner you get started, the more time you’re giving yourself to save and your money to grow—and that’s the best way to help ensure you’re able to achieve all your financial goals.
Investing involves risk including loss of principal. This article contains the current opinions of the author, but not necessarily those of Acorns. Such opinions are subject to change without notice. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.