Investing for Kids: How to Open a Brokerage Account for Your Child
Investing isn’t just for adults: If you want to teach your kids valuable lessons about money and the power of growing investing, helping them open a deposit brokerage account can be a good idea. start.
Investing for children
One of the biggest keys to a successful investment is a long-term horizon, and kids have it in spades. If they are willing to let their money stay invested for several years, they will likely see a good return on their initial investment. Watching their money grow can encourage them to be better savers and investors as adults, when it really matters.
Here are some things to consider about investing for kids, including the best investments and how to select and set up your child’s first brokerage account. And to clear up any confusion, you will often see this type of account also referred to as a custodian account or UGMA / UTMA account.
Decide on an account type
In order for your children to start investing, you must first decide which investment account is best for them. This decision largely depends on whether or not they have earned income.
If your child has no taxable income or salary: Under the Uniform Law on Gifts to Minors or the Uniform Transfer to Minors Law (UGMA / UTMA), you can open brokerage deposit accounts for your children. Although the account is initially in your name, your child will be able to take full control of it once they are 18 or 21, depending on state laws. (Learn more about UTMA and UGMA accounts).
If your child has taxable income or wages: If your children are older and have earned income, you can help them open a custodial IRA. A Roth IRA in particular is ideal for children: your child’s contributions to the account will increase tax-free. These contributions can be withdrawn at any time and the growth of the investment can be harnessed for retirement, but also for the purchase of a first home and education. (Here is a full rundown of Roth IRA for children.)
per trade for US stocks and online ETFs
Choose the right broker
No matter what type of brokerage account you decide to open for your children, you will need to start by finding a broker. The best children’s investment accounts charge no account fees and have no minimum initial deposit. This gives your children the opportunity to start investing with a small amount of money.
“Look for an online broker with no account fees or minimum investment.“
Also consider the costs associated with the investments your child is considering choosing. For example, for kids who want to practice trading stocks, you need to make sure that the broker charges low or no trading commissions. If your kids just want their money to grow on their own, look for brokers with a wide selection of low-cost index funds.
If you are looking for a brokerage account to teach your kids how to invest, be aware that there are many brokers that offer educational content, including online investing tutorials and even exercise trading accounts.
You can open a custody account – both a standard brokerage account and a Roth IRA – for your child in under about 15 minutes; with most brokers, the entire process is done online.
To speed things up, make sure you have the necessary information handy. The broker will likely ask you for your and your child’s social security number, along with your dates of birth and contact information. You will likely need to provide your employment information and you should be ready to link another bank or brokerage account so that you can transfer money to fund the new account.
Help your child decide what to invest in
Once the deposit account is opened and funded, the real fun begins: investing the money.
In their brokerage account, your kids will be able to invest in individual stocks, as well as mutual funds, index funds, and exchange traded funds.
To motivate your children to invest, we encourage a two-pronged approach:
1. Help them choose one or two individual titles. Focus on household names they are familiar with – owning even a share of popular brands that kids recognize will inspire them to invest.
2. Build the rest of the portfolio with index funds. As your child continues to add money to the investment account, we recommend that you skip additional stocks of individual stocks and focus on low-cost index funds or ETFs instead. These funds provide essential diversification to the portfolio, by grouping hundreds of stocks into a single investment. This way your child can invest in many different businesses in one transaction.
Once they’ve selected and bought their investments, get into the habit of checking their gains and losses every few days and comparing small swings to larger long-term changes. This will spark discussion and inspire kids to become more informed investors in the future.
Investing for teens
If your teenager is asking about investing, a babysitting will always be your best place to start. The age required to open a brokerage account with the most popular investing apps is 18 (and sometimes over, depending on the state). So until then you have the final say on how they invest and where.
However, some of the most popular investment apps with younger generations (such as Robin Hood and Webull) do not offer custody accounts. So you will want to do your research alongside your teenager, explaining that if he wants to start investing before the age of 18, he will have to do so. an institution that offers custody accounts. Once they have reached the age of majority, they can decide whether they wish to continue with the same brokerage service, or open their