I recently was by someone I know how he can invest while still in high school. I told him I would get back to him as I wanted my response to be well researched. While doing this I figured why not make an article on it as well. I plan to do one about college too so stay tuned for that.
I believe you should invest as soon as you can. Investing early will set you up for an amazing retirement. Investing early can even help you retire early and enjoy more of life. Dividend investing is what I would recommend every do and do it early. As soon as you can crawl, do it! Kidding, but you get the idea.
IMPORTANT – However, and I must stress this, having a minor mess with the stock market is dangerous and as parents, you should supervise and help research till they have the experience to do it on their own. I think about that story of the kid who committed suicide because he was investing on RobinHood and he did not understand what he was doing and thought he owed $900k after a failed investment. Please help your kids and help them learn and in the process you will learn as well. This is their life and their money, please protect them till they gain the experience needed to invest on their own.
Investing at 16
Now, with the above said, there is nothing wrong with investing while in high school. I think it is an awesome way to prepare yourself and give yourself an advantage in life. Most high school kids are working and saving up for their college funds, cars, etc. I believe they should add retirement to that list. Everyone wants to have fun when they are young and spend their money as if it burns a whole in their wallet. Saving is not a bad thing and should not be looked at as such when you are young. Start early and I promise you will thank me in 50 years.
Legalities of Investing as a Minor
I would like to put another disclaimer out there. I am not a lawyer, tax advisor nor am I a licensed stockbroker. I am simply a person who did his research and loves to invest. Please do your own research and consult licensed professionals.
Now, minors (anyone under 18), can own stocks in their names. Minors however cannot open a brokerage account on their own. This is because you cannot legally sign for yourself and transfer agents cannot accept a signature from a minor. You can however open a custodial account (UGMA Account) in your name. If you have a job, you can even open a Roth IRA account.
A minor cannot complete a transaction on their own; they will need to have a parent or legal guardian do it for them. If the stock is in your name, neither you nor your guardian can conduct transactions with it. This is why UGMA accounts were created and why they are important. The stocks held in the account are in the minor’s name and a trustee can conduct transactions on their behalf. This is done until the minor is of legal age and can use the account on their own.
Opening a Roth IRA
Roth IRA is just an account, which means no investments need to be made. The only requirement for this type of account is that you need earned income that meets a specific adjusted gross income (AGI). If the minor has a job, they will most likely qualify. If you are a minor, a parent or guardian must act as a custodian on the account until the minor is of age to act as their own.
This account has multiple benefits. One benefit is that it does not matter who contributes to the account. You, your parent or guardian, or another relative who wants to give you birthday money can deposit money into the account. Another benefit is that this type of account is good for tax purposes. Since the account is funded with after-tax dollars, you are not taxed when withdrawing money from it as long as it is money you put in. Any money earned from distributions and dividends are tax-free as long as they remain in the account.
Fidelity® Youth Account
I use Fildelity and they offer a youth account you can open up for minors. This account is for teens to save up, invest and use a spending account. There are no monthly fees or account minimums.
Your teen can invest in stocks and utilize fractional share investing where as little as a $1 gets you a small sliver of a company. This account comes with a debit card and does not charge for atm fees. This is a great way for your son or daughter to learn how to save and spend their money. You as a parent or guardian will have access to alerts and can monitor your kids account activity.
Fidelity offers a bonus right now. If you own an account for your child, Fidelity will put $50 in the account. This account can only be opened by a parent or guardian and is only eligible to teens 13 to 17 years of age.
RobinHood offers Roth IRA and other accounts so you can help your teen invest. Aside from these account, RobinHood allows you to invest in crypto which is another good investment. Bitcoin kicked off a huge gold rush for different cryptocurrencies and investing in some now could pay off later.
Helping your teen research and invest is a great opportunity for both of you. This is a great teaching method and will help you and your kid learn the basics and grow your portfolios together. This will teach your kid a great deal of responsibility, which will also help them in life.
It is never too late to start but the sooner the better. Open an account for your son or daughter and show them how to invest. Let them learn the ins and outs of the stock market and what it means to invest. I suggest opening a Roth IRA for them (If they have job). Maxing out this account every year should be their priority. $6,500 is the limit per year and should be very easy if they are still in high school with a part-time or full-time job.
Once they have gotten the basics down and have learned a bit about stocks and the market, let them invest on their own. Let them make a mistake or two, as this will help them learn better. Now, do not let them make a mistake that will cost them thousands of dollars but let them make some type of mistake.
If you help your child learn the basics now, I guarantee in the future they will thank you. Imagine being able to max out your Roth IRA for 50 years and invest in quality stocks that let us say brings you 8% each year, that would be $351,000 for retirement. Couple this with their own retirement account they get from working and your child will be set for retirement. Do your child a favor and help them invest, you will not regret it and they will be thankful you did.