The stock market is an excellent way to make money and build savings. By investing young, you’ll be able to start enjoying your profit when you’re an adult.
If you decide to keep the money invested until retirement, you can create a sizable nest egg.
Consider the story of Sudarshan Sridharan. He made huge returns by investing in Tesla while he was still in high school. The student also earned money from investments in Google and Netflix.
Sridharan gave himself a head start in life by investing young. Remember, while it’s true that you can’t open an investment account until you’re an adult that doesn’t mean you can’t start early!
Why investing early matters
It’s never too soon to start your trading education and begin investing. And you don’t need to be a wall street insider to learn how to buy and sell stocks like a pro.
Early in life, learning to invest and trade on the stock market sets you up for success in adulthood. Best of all, you’ll earn money while building transferable skills that prepare you to properly manage future finances.
Later in life, you’ll likely want to start an investment account for retirement. Knowing how to get the most out of your investment may even allow you to retire sooner.
Trading stocks and managing your money from an early age can prepare you for concepts like setting a financial goal, achieving a solid credit score, and navigating financial markets.
How Old Do You Have To Be to Invest in Stocks?
With a streamlined platform, investing in the stock market is easier than ever. Apps like WeBull or Robinhood are great for building real skills and learning to think like real stock traders. These platforms also provide a painless introduction into concepts, such as trading strategy, tracking past performance, stock trading, options trading and day trading.
While learning the ins and outs of the stock market early in life can be fun, there is a catch. You can’t open a brokerage account until you are 18 or 21, depending on your state’s laws. This can be a difficult obstacle to overcome if you want to begin investing young.
Minimum age is a legal requirement for investing. There are no loopholes for those under the legal age to open accounts.
However, what you can do is open a custodial account, like Sudarshan Sridharan did, which is managed by a parent or guardian. This is a way to trade within these age restrictions, and you can buy stocks — with some caveats.
Using a custodial account to trade within legal age restrictions
While it’s not a brokerage account, a custodial account is the next best thing.
For a custodial account, a parent or legal guardian opens up an account in your name and can then gift funds into it. The minimum balance can vary, but the limit is $15,000. This is more than enough for any youngster to start investing.
There are two types of custodial accounts:
The Uniform Gift to Minors Act (UGMA) — This lets minors own gifts such as stocks, mutual funds, securities, etc.
The Uniform Transfer to Minors Act (UTMA) — This allows minors to own other gifts, including real estate.
Even with the funds in your custodial account, the actual trades will need to be done by your legal guardian. This means that you cannot buy or sell stocks without them signing off on it.
So while you can’t legally enter the world of trading yet, you can ask your guardian to buy and sell stocks that you’re passionate about.
Your parent or guardian will maintain full control over the account, and you won’t be to directly make decisions. So it’s important to make sure the person in charge (the account holder) is someone you trust completely.
This will let you trade and earn money until you are old enough for your own brokerage account.
After you’re squared away, you can focus on making your initial investment.
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Why You Should Start Investing Young
There are countless reasons why you should start investing at a young age. The main draw is that the earlier you start, the more money you can earn from your investment.
As a young trader, the amount invested can be smaller. The low price point also allows you to train yourself to make smart, dispassionate trades — free from the anxiety of a large loss.
If you make investing a part of your early life, then you’ll improve your spending habits. This will give you the financial flexibility to float money toward your future car or house.
Learn to be more future-focused
As you put money aside for an investment, you’ll learn the value of saving and how to divide a fixed income. You’ll ensure you have cash for your investments before making your monthly budget.
By investing young, you can enjoy the long-term benefits of compounding. Compounding is the process of interest getting paid on the interest you earn.
As a small example, if you invested $1000 in a dividend-paying stock at 5%, you would get an additional $50 payout. In the next year, you would get 5% of $1050, which is $52.50. And in the following year, you’ll get a payout of $1102.50, and so on. That doesn’t even include the price that the stock could increase by!
Compounding allows you to earn more money over time because the earlier you start, the greater your return will be.
Where to start your early investment education
There are plenty of educational resources online that can teach you how to decide whether or not you want to buy and sell specific stocks.
Also, while you’re learning how to build a strong investment strategy, it’s good practice to develop an understanding of finances in general. It is never too early to learn the difference between investment accounts and a traditional bank account.
If you really want a head start, we also recommend checking out specific investments that are geared towards later life goals, like investing in real estate, Roth IRA, and mutual funds.
Educational resources that provide investment advice can be found all over. Reading informative blogs written by experienced traders can teach you valuable information about when to invest and when to sell investments.
It’s important to treat the opinions expressed by trading pros as a lead to something better. So make sure to follow up with deeper research when you find an idea that you like.
If you want to learn about exchange-traded funds, publicly traded companies, or how to set up your own brokerage account, we are here to help. In fact, most brokers stay up-to-date on the market through news and posts online.
High Growth Stocks
Another benefit of investing while you are young is that you can take more risks.
It is true that high growth stocks usually carry more risk, but you’ll have more time to recover. Also, you don’t need to make a heavy investment. Instead, you can use this opportunity to test out strategies for high growth stocks.
When you’re ready to start trading you should ask yourself: What are my goals? What type of stocks do I want to trade? And how much money do I want to make?
Early investors in companies like Apple, Tesla and Google have gone on to make fortunes. These stocks were considered high-risk at the time, but they have proven to be very successful and stable in the long term.
High growth stocks generate profits faster than the average investment. While these stocks do carry more risks — if you conduct proper research — you can find promising companies to get behind.
Use this time to learn when to take risks in companies with the potential for speedy growth.
How To Identify High Growth Stocks
To identify high growth stocks, you should look at companies that can capitalize on new and long-term trends.
As an example, Netflix was a high growth stock because it launched the first streaming service that was new and had long-term potential. Today, Netflix is a streaming juggernaut, and it will likely be a staple of media consumption for years (possibly decades) to come.
Also, digital advertising and eCommerce companies and products have long-term growth potential as more buyers and sellers move exclusively online.
Facebook and Google offer strong investment opportunities as a result of their digital advertising solutions.
Storefronts like Shopify and dropshipping businesses like Alibaba have shown strong growth in recent years.
Follow the news
Stay up-to-date with the news to identify future trends as soon as possible. The trick is to start investing in these companies early, as you can achieve far more lucrative future results.
The sooner you can trade, the more profit you stand to make. While future following trends is a solid strategy, there are mainstay trends that will always be worth investing in.
Look into companies that provide valuable services, such as computing, food, healthcare and energy.
Conclusion: Invest Young
If you can convince a parent to help you open a custodial account, then you can start building your future today. Investing young can provide you with a great safety net and the potential to set you up for life.
When you are old enough, you can transition from your custodial account to a standard brokerage account and earn income on your own. Keep in mind that most brokers charge a brokerage free (or trading commission). Also, the minimum balance requirements for accounts can vary, so do your research before committing to one.
For now, read about financial news and invest in the latest trends. Diversify your investments between stocks. Keep topping up your investments and make some real money.
Your goal should be getting in the market early and targeting any companies that show high growth potential!