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Company stocks or shares are some of the most significant global investments, and recent advancements in technology have made them even more accessible.
There is not an age limit for buying company shares, but most governments have a set legal adult age for when individuals can purchase and trade independently without parental assistance. The reasoning is that anyone under the legal adult age cannot enter into a contractual agreement independently.
Anyone under the legal adult age, who wishes to invest in company shares, will have to open a custodial (or joint) account with their legal guardians or parents. Read on to learn more about how age limitations affect buying shares and how to get started investing if you’re under the legal age limit.
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How to Own Shares if You’re Under the Legal Age
Regardless of the age limits set to when an individual can legally purchase or trade shares independently, there are still ways to legally own some if you’re below 18 (or 21 in some cases).
Underage persons may come to own stocks when passed down in a will or given as a gift. Through a custodial stock account, parents can gift shares to their children.
Custodial Stock Account for Minors
Custodial stock accounts are accounts with brokerage companies that require the approval of a legal guardian or parent (the custodian) before transactions are performed on the account -- buying or selling shares can’t be done without the custodian.
The underage teen is the beneficiary party of a custodial account. Custodial accounts are divided into two:
The Uniform Transfers to Minors Act (UTMA) Account
This type of account makes it possible for adults to give different types of assets to minors. The assets that one can gift to children with this account include stocks and bonds, patents, real estate, money, fine art, royalties, etc.
Before the minor gets to the legal adult age, the UTMA account custodian manages all transactions. However, immediately the child reaches 18 or 21, the brokerage firm puts the child’s name on the account -- this allows the individual to make water decisions and actions they please with the account’s assets.
One significant advantage of the UTMA account is that the assets held in it are free from taxation. This perk is available up until the minor is old enough to take complete control of the account.
The Uniform Gifts to Minors Act (UGMA) Account
This account is similar to the UTMA. However, it was developed before the UTMA. UGMA accounts also make it possible for adults to secure stocks in the name of minors until they become of age.
One of the differences between both accounts is that the UGMA has more limitations regarding the assets it supports -- speculative instruments and buying on margin don’t work with this account.
It may interest you to know that it cannot be undone when a custodian transfers assets into a UGMA account. The UGMA is also free of taxation.
How to Buy Stocks as a Beginner
Purchasing and trading stocks have become easier and more accessible over the years. Signing up with a brokerage firm can be done from the comfort of your home with a smartphone or computer.
The steps needed to invest in company shares are simple, and the first thing you should do is find the best stockbroker.
Here are the steps to follow to get started:
- Select a reputable broker.
- Research which stocks to purchase.
- Determine the number of shares to buy.
1. Select a Reputable Broker
Stockmarket.com describes a brokerage account as an account that allows customers to invest in assets like bonds, stocks, Mutual Funds, and options. These accounts work because they let you deposit/fund the accounts with money and then use it to purchase the company shares you wish to invest in.
Customers can monitor the money deposited and stocks purchased through the brokerage account. Your total assets can also be liquidated whenever you like.
However, it should be noted that many brokerage companies have legal age limits and require their clients to show proof of age when signing up. Therefore, if you’re under the legal adult age, you will likely require assistance from your parents or legal guardian, before a brokerage company will aid you.
Brokerage accounts can either be managed by a professional (usually for added fees) or managed by oneself. If you wish to open an account that you will operate independently, you’ll have to take some lessons to get yourself familiar with running it.
On top of providing proof of age, opening brokerage accounts will require you to provide some vital information like SSN, Address, Tax Status, etc. After registering your details successfully, you can fund the account and start purchasing stocks.
2. Research Which Stocks to Purchase
After opening and funding your brokerage account, you’ll have to decide what stocks to purchase. Common stocks that people buy are FACEBOOK (NASDAQ: FB), TESLA (NASDAQ: TSLA), APPLE (NASDAQ: AAPL), AMAZON (NASDAQ: AMZN), and more.
Always keep in mind that the company shares your buy will make you a part-owner of the company. You should tune out any noise about the stock investment market and do some personal research before investing in any company shares.
Most times, you don’t have to worry about finding tools needed for market analysis. Once you have successfully signed to a brokerage firm, the firm will most likely provide you with relevant tools for analyzing market conditions and placing trade orders.
3. Determine the Number of Shares to Buy
The size of your available budget will determine the number of shares you can buy. It is advisable to put only money you can afford to lose into stock investments as a beginner.
The reason for this is that markets are uncertain, and things can go against the direction you’re betting on. You’d be able to sleep much better if you’re not risking all your money in a single investment.
Stocks and shares are similar , but they’re not the same thing. ‘Stocks’ usually refer to common stocks, which represent ownership shares in a company. Shares, on the other hand, are smaller bits of a company’s stock.
It’s best to sell stocks when they’re profitable. However, it’s always wise to have a long-term holding plan before you consider selling your company shares. The reason for this is that market prices can plunge during the time you’re holding shares, and selling could lead to a substantial loss.
It’s never too early to start investing in stocks. The best way to invest is to start as early as possible. The reason for this is that the interests accrued over longer years will be more substantial than when gathered over a short period.
If you’re still below the legal adult age, don’t be discouraged. Seek advice from your parents or guardian and let them open a custodial account for you. In a couple of years from now, you’ll be old enough to take total control of your brokerage account.
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