Can't wait to start investing before you even leave high school? We can help you learn how to invest as a minor student under 18 years in 2022.
How to invest your money as a minor
You don't have to become a personal finance wizard. All you need to do is understand a few basics and invest regularly each month to build wealth.
If you are a minor and start investing today, you will have a head start on the state of your finances as an adult, even with modest gains.
Even though today's headlines report the stock market crash and uncertainties about the economy, that doesn't mean you shouldn't invest. In fact, sometimes a market downturn is normal.
Investing when you're still a minor, you'll be building an incredibly large investment portfolio much sooner than you think. Here's our guide to how to invest as a teenager.
How old do you have to be to invest in stocks?
Before you start calling the stockbrokers we've reviewed here, know that there's a fundamental problem with being an underage investor: You must be at least 18 years old to start investing in stocks.
There are plenty of investment apps out there that seem great for minors, but you still need to be 18 to participate. This restriction is a legal requirement specific to the investment industry, and there is no way around it. At least not directly.
How do get around this obstacle?
Sara is a high school student from Lyon who made headlines in 2015. He didn't become famous by winning a football championship or performing in the school play, but by winning 15,000 euros by betting on the rise in Tesla shares. He also earned 18,600 euros by investing in Google and an additional 7,000 dollars on Netflix. He made all his winnings in three years.
Here's what Sara did: He invested using a deposit account opened and managed by his father.
These accounts allow you to invest through an adult. When you turn 18 or 21 (depending on your state's laws), the account will revert to your name. At that point, you will be ready to fly on your own.
How does a deposit account work?
A parent or guardian opens a deposit account for you and deposits funds into it.
Once the funds are deposited in the account, you can start investing them. Of course, your parent or guardian will have to carry out the transactions for you.
They will retain control of the account management and as a minor you are not allowed to contact the account broker to execute your trades.
However, you can participate in the investment process. You can create a portfolio allocation and select asset classes or even specific investments.
Best Brokerage Accounts
We have reviewed many brokerage accounts. And we found some very interesting products:
- Zero Bux
- DEGIRO
Learn how to diversify your deposit account as a minor
Once you have obtained a taxable deposit account or a PEA account, you must decide what type of investments to place there.
You can choose from many types of investments, from simple-to-understand stocks to complex derivatives. We think it's best to start simple.
1. Start with stocks
You don't have to be a mad scientist to start investing in stocks. In fact, by researching stocks and deciding which ones you want to invest in, you will learn a lot about how the stock market works.
Choose a company that you like and, above all, that you trust. It's nice to be able to say that you own part of a stock like Microsoft or Netflix. But, historically, these companies have also been regular sources of income.
Consider investing in some of the stocks like Coca-Cola and Tesla. These are companies that have proven their ability to increase their dividends. This means that in addition to the gains you will get when you sell the stock, you will also receive cash distributions on a quarterly or annual basis.
If big business isn't your thing, you can also invest your money to help build sustainable industries and support smaller ones.
2. Switch to low-cost mutual funds
Once you understand the basics of the stock market, you can consider investing in low-cost mutual funds. Mutual funds are collections of individual stocks.
Because there are multiple stocks in each mutual fund, you aren't dependent on just one company to make gains. So you can spread your risk, rather than putting all your eggs in one basket.
The best mutual funds for new investors include diverse stocks that give you broad exposure to different sectors and markets.
Many of the stockbrokers we've discussed offer their own mutual funds, so you won't have to pay hefty commissions when buying and selling these investments.
3. Open a High Yield Savings Account
If you can't convince your parents or guardian to open a stock brokerage account for you, ask for a high-yield savings account instead.
Although you won't earn the potential gains you can get in the stock market, savings accounts are a low-risk way to earn regular money through compound interest.
The interest rates you will find at your local bank branch are nothing out of the ordinary. However, exclusively online banks offer rates that can be up to 20 times higher. This is because they do not have to bear the overhead costs of maintaining a branch.
Start sooner rather than later
If you want to be an underage investor – and you absolutely should if you can – ask your parents or guardian to open a deposit account. You'll have time to learn the tricks of investing and build a small portfolio.
Believe me, it will be better than getting a new car as a graduation present.