With the rise of financial technology, there are now many excellent investment apps available even for minors under 18 to start investing in the stock market. By opening a custodial investment account with parental consent, those under 18 can begin investing and compounding returns early. However, it is important to educate yourself on risk management, portfolio allocation, and have reasonable expectations when investing as a youth. This article will summarize the best investment apps for minors and key factors to consider when investing under 18.
Custodial investment accounts enable under 18s to invest with guardian approval
The key to investing for those under 18 is opening a custodial investment account, also known as UGMA/UTMA accounts. These accounts are set up by parents/guardians for the benefit of minors, allowing them to invest in stocks, ETFs, mutual funds, etc. While the assets in the account legally belong to the minor, the adult oversees and approves all investment decisions until the child reaches adulthood. Leading investment apps like Fidelity, Charles Schwab, and TD Ameritrade offer excellent custodial account options. The guardian simply needs to provide their details and the minor’s information such as Social Security number to open the account.
Start with small amounts and build knowledge before increasing investment
It’s exciting for minors to start investing early, but important to start small, around $500-1000, as you build knowledge and experience. Take time to understand key concepts like asset allocation, diversification, dollar cost averaging, and compound interest. Many investment apps offer virtual trading platforms to practice risk-free. Build a balanced portfolio not concentrated in any one stock. As your investing skill grows, you can increase the amount invested accordingly. But especially for those under 18, don’t invest any funds you may need in the near future.
Investment apps provide education and helpful resources for novice teen investors
Rather than risk large sums as a beginner investor, it’s wise to leverage the educational resources provided by leading investment apps. For example, TD Ameritrade’s educational offerings include informational videos, online courses, and numerous articles that teach investment methodology in a youth-friendly format. Charles Schwab has an entire section dedicated to helping under 18 investors learn about topics like building credit, types of assets, taxes, and more. Interactive in-app quizzes and virtual trading simulators allow minors to gain experience without putting real money at risk initially.
ETFs and index funds are smart choices for long-term, diversified investing
While individual stocks may provide excitement, index funds and ETFs are generally the smartest way for beginners to invest, especially minors. They provide instant diversification across entire market sectors and require less due diligence than researching individual companies. ETFs like VTI and VOO track the overall U.S. stock market while letting you benefit from broad growth. Sector ETFs for growing areas like technology, healthcare, and clean energy are also great options. Mutual funds that mimic index performance are another diversified choice. Stick to low-cost index funds rather than riskier actively managed funds.
Start investing early for long-term growth, but have reasonable expectations
The biggest benefit of investing early for minors is taking advantage of compound growth over decades. However, it’s important to keep expectations realistic. Have a long horizon of 10+ years and do not expect to become rich overnight. There will be market volatility and some years will see negative returns. The key is sticking to a long-term plan, allowing the compounding to work its magic over many years. By starting at under 18, you have time on your side. Invest regularly, reinvest earnings, and with patience you can steadily build your wealth.
By opening a custodial investment account, minors under 18 can start investing and take advantage of compound returns early. But educate yourself first, start small, use apps’ educational resources, focus on diversified ETFs and index funds, and keep a long-term mindset. Patience and discipline will pave the way for investment success down the road.