As a minor, saving money is important, but so is making your money work for you. Investing your money comes with its own set of risks and rewards, but with the right investment account, you can make smart financial decisions that will help secure your future. Here are the best 12 investment accounts for minors:
1. Custodial Accounts
A custodial account is a type of investment account that an adult (usually a parent) manages on behalf of a minor. The adult acts as the custodian of the account until the minor reaches the age of majority (18 or 21 years old, depending on the state). Custodial accounts come in many forms, but the most popular are Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts.
2. 529 Plans
If you’re planning on attending college, a 529 plan is a great investment account for your future. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These accounts are managed by the state and can be used for tuition, books, and other educational expenses.
3. Roth IRAs
Roth IRAs are another great investment account for minors. A Roth IRA is a type of individual retirement account (IRA) that allows you to invest after-tax dollars. The money in the account grows tax-free and can be withdrawn tax-free after age 59 ½. Since minors have a longer investment horizon, a Roth IRA can be a great way to maximize their investment potential.
4. Traditional IRAs
Traditional IRAs are another type of retirement account that minors can invest in. A traditional IRA allows you to invest pre-tax dollars and the money in the account grows tax-deferred. However, withdrawals from a traditional IRA are subject to income tax.
5. Brokerage Accounts
A brokerage account allows you to invest in a wide range of securities, including stocks, bonds, and mutual funds. With a brokerage account, you can manage your own investments and make decisions about what to invest in.
6. ETFs
An ETF (exchange-traded fund) is a type of investment fund that is traded on a stock exchange. ETFs are similar to mutual funds, but they are priced differently and can be traded in real-time, like stocks. ETFs are a great option for minors because they offer broad market exposure at a lower cost.
7. Mutual Funds
Mutual funds are a type of investment account that allows you to pool your money with other investors to purchase a diversified portfolio of stocks, bonds, or other securities. Mutual funds can be actively managed or passively managed and provide a low-cost way to gain exposure to the stock market.
8. Index Funds
Index funds are a type of mutual fund or ETF that tracks a specific market index, like the SP 500. Because they require less management, index funds have lower fees than actively managed funds.
9. Banking Products
Banks offer a variety of investment products, like savings accounts, CDs, and money market accounts. While these accounts typically provide lower returns than stocks or bonds, they are a low-risk way to build your savings.
10. Real Estate Investments
While real estate investments are typically associated with adult investors, minors can also invest in real estate through crowdfunding platforms or REITs (real estate investment trusts).
11. Commodities
Commodities are raw materials like gold or oil that are traded on global markets. While commodities can be volatile, they can also provide a hedge against inflation and can be a good addition to a diversified investment portfolio.
12. Cryptocurrencies
Cryptocurrencies like Bitcoin and Ethereum are digital currencies that can be used to buy goods and services or traded on online exchanges. While cryptocurrency investments can be risky, they have the potential for high returns and can be a good addition to a diversified portfolio.
FAQs:
1. Can minors invest in their own brokerage account?
No, minors cannot open a brokerage account in their own name, but they can invest in a custodial brokerage account managed by an adult.
2. What is an age of majority?
The age of majority is the age at which a minor is considered an adult in the eyes of the law. In most states, the age of majority is 18, but in some, it’s 21.
3. Are investment accounts insured by the government?
Some investment accounts, like savings accounts, CDs, and money market accounts are insured by the FDIC (Federal Deposit Insurance Corporation). However, other investment accounts, like stocks and mutual funds, are not insured.
4. What is a REIT?
A REIT (real estate investment trust) is a type of company that owns and manages real estate. When you invest in a REIT, you are essentially buying a share of the company.
5. What is a custodial account?
A custodial account is an investment account that is managed by an adult (usually a parent) on behalf of a minor. The adult is the custodian of the account until the minor reaches the age of majority.
6. Can minors invest in cryptocurrencies?
Yes, minors can invest in cryptocurrencies through a custodial account managed by an adult.
7. What are ETFs?
ETFs (exchange-traded funds) are a type of investment fund that is traded on a stock exchange. They are similar to mutual funds, but are priced differently and can be traded in real-time.
8. What is a Roth IRA?
A Roth IRA is a type of individual retirement account that allows you to invest after-tax dollars. The money in the account grows tax-free and can be withdrawn tax-free after age 59 ½.
9. What is a traditional IRA?
A traditional IRA is a type of individual retirement account that allows you to invest pre-tax dollars. The money in the account grows tax-deferred, but withdrawals are subject to income tax.
10. Can minors invest in real estate?
Yes, minors can invest in real estate through crowdfunding platforms or REITs (real estate investment trusts).
Conclusion
Investing your money as a minor can be a smart financial decision, but it’s important to choose the right investment account for your needs. Whether you choose a custodial account, a brokerage account, or a retirement account, always do your research and work with an adult you trust. By making smart financial decisions now, you can set yourself up for a successful financial future.
