How Old Do You Have to Be to Start Investing?
Short answer
You can start investing as soon as you are legally able to open an investment account, which in most states is 18 years old. However, minors can invest through custodial accounts managed by parents or guardians. Starting early helps build wealth over time, but it’s never too late to begin investing for your financial goals.
What Does It Mean to Start Investing?
Investing means putting money into financial assets like stocks, bonds, or funds with the goal of growing that money over time. Instead of just saving cash in a bank account, investing aims to increase your wealth by earning returns through market growth, dividends, or interest. For example, if you buy shares in a company and the company grows, the value of your shares can increase, potentially earning you a profit when you sell them.
Investing is a way to build money for future needs such as retirement, buying a home, or education. Money you invest can grow faster than money kept in a savings account because investments usually offer higher returns, though they also come with risks of losing money. Knowing how investing works helps you make smart decisions to balance risk and reward for your financial goals.
How Old Do You Have to Be to Open an Investment Account?
In the United States, you generally need to be 18 years old to open an individual brokerage or retirement account on your own because that is the age of legal adulthood in most states. Being 18 means you can enter into contracts, including those required by financial institutions to invest.
If you are under 18, you cannot open an investment account by yourself but can invest through a custodial account. A parent or guardian opens the account on behalf of the minor and manages it until the minor reaches legal adulthood. These accounts let minors buy stocks, bonds, or funds with adult supervision.
For example, if a 16-year-old wants to invest, their parent can open a custodial account and deposit money to invest in index funds. The parent controls the account until the child turns 18 or 21, depending on state law, at which point control transfers to the child.
How Does Investing Work for Someone Starting at 18?
Once you turn 18 and open your own account, you can choose what to invest in based on your goals and risk tolerance. Here’s a simple example illustrating how investing might work:
Imagine you have $1,000 to invest in a diversified index fund, which tracks the overall stock market. If the fund grows by an average of 7% per year, your investment could grow as follows:
| Year | Investment Value at 7% Growth |
|---|---|
| 1 | $1,070 |
| 5 | $1,403 |
| 10 | $1,967 |
| 20 | $3,870 |
This example assumes you leave your money invested without withdrawing it and doesn’t account for taxes or fees. The key idea is that investing early allows your money to grow over time through compounding returns.
Why Does Age Matter When Starting to Invest?
Starting to invest at a younger age is powerful because of compound interest—the process where earnings generate their own earnings. The longer your money stays invested, the more time it has to grow and multiply. For example, if you start investing at 25 instead of 35, you potentially gain about 10 extra years of growth, which can significantly increase your final savings.
However, age is less important than starting at all. People can start investing in their 40s, 50s, or beyond and still benefit from investing wisely. The key is to adjust your investment choices to your time horizon and risk tolerance.
What Are the Different Investment Accounts and Terms to Know?
People often confuse investment accounts with other financial accounts, so here are some basic terms:
- Brokerage Account: A general investing account you open at a firm to buy and sell stocks, bonds, or funds.
- Custodial Account: An account managed by an adult for a minor until they reach adulthood.
- Retirement Account: Accounts like IRAs or 401(k)s designed to help save for retirement with tax advantages.
- Index Fund: A fund that tracks a market index, offering broad diversification and lower fees.
- Dividend: Payments some companies make to shareholders from profits.
- Risk Tolerance: How comfortable you are with fluctuations in the value of your investments.
Knowing these terms helps you make informed decisions and avoid confusion between savings accounts and investment accounts.
How Can Teens and Young Adults Start Investing?
If you are under 18, talk with a parent or guardian about setting up a custodial account. Once you reach 18, you can open your own account online through many brokerage platforms with a few steps:
- Provide personal information like your Social Security number and address.
- Link a bank account for funding.
- Choose your investments based on your goals (stocks, index funds, bonds).
- Monitor your investments and learn about fees and taxes involved.
Many platforms offer low-cost or no-fee investing and educational resources to help beginners. Starting small and learning as you go is a good approach.
What Should You Do Next If You Want to Start Investing?
- Check your state’s legal age to open accounts (usually 18).
- If under 18, ask a parent about custodial accounts.
- Decide your investment goals: retirement, buying a home, education, etc.
- Research beginner-friendly investment accounts and platforms.
- Learn basic investing terms and strategies from trusted resources.
- Start with a small amount and diversify your investments.
- Review your investments regularly and adjust as needed.
Starting with these steps builds a foundation for confident investing, helping you grow money safely toward your goals.
Frequently asked questions
Can I start investing before I turn 18?
Yes, but you need a parent or guardian to open a custodial account on your behalf. They manage the account until you reach the legal age to take control, usually 18 or 21 depending on your state.
Is there an age limit where it’s too late to start investing?
There is no age limit to start investing. While starting earlier helps with growth, people can begin investing at any age to work toward goals like retirement or legacy planning.
What if I don’t have a lot of money to start investing?
Many platforms allow you to start with small amounts. You can invest in fractional shares or low-cost index funds. Consistency matters more than large initial amounts.
What’s the difference between saving and investing?
Saving usually involves putting money in low-risk accounts like savings or checking accounts for short-term needs. Investing involves higher risk but potential for greater long-term growth by buying assets like stocks or bonds.
How risky is investing at a young age?
Younger investors can generally take more risks because they have time to recover from losses. Diversifying investments and learning about risk management helps reduce potential downsides.