Young Investors: Can I Buy Stocks If I’m Under 18?

Investing in the stock market can be a great way to grow your wealth over time. However, many people assume that they have to be a certain age to invest in stocks.

In Australia, the legal age to buy and sell shares is 18 years old. But what about young people who want to start investing earlier? Is it possible for Australians under 18 to invest in the stock market?

In this article, we’ll explore:

• Investing at a young age
• Legal Issues for young investors
• Benefits of investing at a young age

Investing at a young age

Did you know that according to ASIC’s Young People and Money 2022 survey, at least half of respondents between 15 to 21 years old were looking at ways to invest and account for risks and benefits?

There are many reasons why young people may want to start investing in the stock market. For starters, investing at a young age can help you build long-term wealth. The stock market historically has provided an average return of around ten percent per year, which means that even small investments can grow significantly over time. By starting early, young investors have more time to benefit from the power of compound interest.

Investing in the stock market can also be a great way to learn about finance and economics. As a young person, you have a unique opportunity to develop good financial habits and learn about the importance of saving and investing. By investing in the stock market, you can gain a better understanding of how businesses operate and how the economy works.

Legal Issues for young investors

While there are many potential benefits to investing at a young age, there are also some legal issues to consider. In Australia, the legal age to buy and sell shares is 18 years old. This means that minors are not legally allowed to open a brokerage account or buy and sell shares in their own name.

The primary reason for this age restriction is to protect young people from making risky investments or falling victim to scams. The ASIC requires brokers to follow strict rules and regulations when it comes to working with minors. These rules are designed to ensure that young investors are not taken advantage of or exposed to unnecessary risk.

Workarounds for young investors

While minors are not allowed to open a brokerage account or buy and sell shares in their own name, there are some possible workarounds for young investors. One option is to invest through a parent or guardian. In this scenario, the parent or guardian opens a brokerage account in their own name and manages the investments on behalf of the child. This is known as a “custodial account,” and it allows the child to benefit from any investment gains.

Another option is to invest through a trust. A trust is a legal structure that allows assets to be held on behalf of someone else. In this scenario, the child would be the beneficiary of the trust, and the trustee would manage the investments on their behalf.

Writing for Money Magazine, Nicola Field said online brokerages like CommSec can activate a Trust option then programme it as Minor for trust type; the objective is to buy the shares for the child then they will be transferred to the child when they turn 18, under a “change of ownership” form. The setup will help parent and child avoid the possibility of paying CGT. However, if the shares are directly in the child’s name, they must be applied for a TFN with the ATO and file the amount under their tax return.     

Benefits of investing at a young age

Despite the legal issues and possible workarounds, there are many benefits to investing at a young age. For starters, investing early can help you build long-term wealth. By starting early, you have more time to benefit from the power of compound interest, which can help your investments grow significantly over time.

Investing in the stock market can also be a great way to learn about finance and economics. By investing in individual companies, you can gain a better understanding of how businesses operate and what factors drive their success. You can also learn about the importance of diversification and risk management.

In addition to these benefits, investing at a young age can help you develop good financial habits. By learning about the importance of saving and investing early on, you can set yourself up for a lifetime of financial success.

Some people may want to start out building their financial security as early as childhood, if not for all the hurdles. If you’re interested in investing in the stock market but are under 18, consider working with a parent or guardian or setting up a trust to get started.

With a good degree of disposable income, it’s typical to want to invest into new assets to increase their cash flow. When you need to keep track of your asset portfolio, UBOMI is your new partner — through the My Assets feature.

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DISCLAIMER:  This article is for informational purposes only. UBOMI has no relationships with any company or government office mentioned. Please consult an investment specialist for your options.