These days, there are plenty of ways to take advantage of the opportunities offered by the stock market. Many brokerages allow you to create an IRA that can be used to invest for your retirement. It may also be possible for those who are 18 to start their own investment account for as little as $100. Let's take a look at what it would take for a high school student to start an investment portfolio.
Anyone Can Have an IRA
One of the easiest ways for a younger person to start investing is to create a custodial IRA. Custodial IRAs name your parent as the trustee of the account and the person who technically owns the money inside of it. A parent or other family member may be able to fund or contribute to the retirement account with the minor child. Once the minor turns 18, it may be possible to rollover the custodial IRA to one in the student's name.
Start a Taxable Account
Those who don't want to save for retirement or want to contribute more than the annual limits may wish to create a taxable account. The main difference is that capital gains may be taxed when a stock is sold as opposed to when money is withdrawn from the account. It is important to note that while minors can own stocks, they cannot open a brokerage account until turning 18. Many brokerages allow you to invest with $250 or less as long as you agree to contribute money each month.
Make Trades With or on Behalf of Your Parents
Parents may want to give their children limited control over their own investment portfolio to help them learn how the market works. One idea may be to let your teenager decide when to sell 100 shares of a given stock or whether it's a good idea to buy a stock or fund in the next 30 days.
Depending on how much risk you are willing to tolerate, it could be a great opportunity for a teen to see the risks and rewards that come with being an investor. Alternatively, it may be worthwhile for a family to start its own LLC to pool its money and make investments collectively. Along the way, parents can provide financial tips and advice that may help a teen differentiate between good opportunities and market hype.
Invest in a DRIP Account
Several large companies that offer dividends allow individuals to buy small amounts of stock in their businesses. When a dividend is awarded, the money is automatically used to buy more shares. This allows for faster compounding, which means that an individual can increase his or her return. It may also be beneficial from a tax perspective to start investing through such a plan.
Become an Investor in a Startup
If you don't want to invest directly in the market, it may be worthwhile to invest in startup companies that may not be listed just yet. This may allow a teen to invest $100, $500 or $1,000 with the opportunity to net a large reward with limited risk.
It can be tricky to start investing if you are under the age of 18. However, there are several options that may allow you to control your money with parental guidance or help make decisions regarding a family portfolio. Learning how to invest at a young age may help a person build more wealth over the course of his or her life as well as gain needed experience in an often unpredictable market.