The financial community faces a growing rift between older and younger investors. CNBC reports that only one in four millennials have invested in the stock market, citing fears of financial instability and a lack of cash.
Meanwhile, young adults have begun dabbling in investment apps such as Robinhood. Unfortunately, many lack the maturity or strategy needed for success.
It’s important to teach rising generations how to invest. But how young is too young to start investing? Let’s explore the legal answer to this question, then offer some practical advice.
Is It Legal for Kids to Invest in Stocks?
To invest in the stock market, you must be at least 18 years or older, though many states ask that investors be as old as 21.
That doesn’t mean that young people can’t invest. Many brokers allow parents to open something called a “custodial account.” This approach means that the parent or guardian can buy, sell, or trade stocks on behalf of their child or children.
How Young Is Too Young?
Every parent will have to make their own choice about when to start teaching their kids to invest. It may be practical to wait until your child is 8 or 9. This approach ensures they have some basic analytical skills to help them make decisions. It also gives them time to watch their investments grow.
In other words, start young. Remember: with a custodial account, you’ll stay in control. This setup can be a great way to guide your child in their journey so that they can take the reins after they come of age.
What Investment Strategies Should Young People Pursue?
Younger investors should focus on the “fundamentals” of investing, including:
- A diverse portfolio
- Buy-and-hold stocks for long-term investment
- Careful monitoring of investments
For example, you might consider a well-balanced mutual fund or ETF. These investment vehicles are cost-effective and safer than selecting individual growth stocks.
Consider All Your Investment Options
We’ve focused on the stock market, but young people can also consider CDs or savings bonds. Young people will likely be unable to invest in tangible property like real estate. But parents might still discuss these vehicles so that young people can consider every option.
Talk the Talk
One way to help new investors is to discuss your own investment strategy with them. Be open about your investments and what your goals are. Your kids will absorb more than you realize, and these conversations can help them form their own strategies later in life.
Check the Apps
Stock market investing has become easier than ever due to the recent explosion of apps. But parents should monitor these apps closely. Young people can get swept up in the adrenaline rush of investing and lack the maturity to make wise choices.
It’s Never Too Late
You may be reading this and wondering if you missed the boat. But it’s never too late or too early to start investing — no matter what age you are!
This article is for information, illustrative and entertainment purposes only and does not purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular investment action.