Generally, investors must be at least 18 to open a brokerage account and, in turn, to buy stocks. However, this limitation can be sidestepped with the Uniform Gift to Minors Act. For investors, aged 18 to 21, buying stocks is no different than for those over 21. One should simply open a brokerage account and buy the desired stocks.
Just as it is essential for any investor, young investors should research the companies in which they plan to invest before investing. This includes learning about the companies' financial records, their plans for expansion/contraction, the quality of management and the quality of competitors.
Investing When You Are Under 21
Utilize the UGMA. Investors under the age of 18 cannot open a brokerage account on their own. However, with the assistance of her guardian or parent, an investor under the age of 18 can own stocks by utilizing the Uniform Gifts to Minors Act (UGMA). Under the UGMA, a minor can own stock, but control of the stock is maintained by a parent or guardian.
Fund a brokerage account. For investors between the ages of 18 and 21, investing in stocks simply requires the funding of a brokerage account and the purchase of stocks in the same way as someone over the age of 21.
Research before buying. As with investors of any age, young investors should research before buying stocks. Particularly succinct investing advice can be found in the annual reports of Berkshire Hathaway (Warren Buffett's company). This advice is especially useful for investors with long investment time horizons--like young investors.
Young investors should consider the value of Roth IRAs. While the money that is invested is taxed in the current year, gains from the investment are not taxed while in the account and the moneys are not taxed when they are withdrawn. This offers a very tax-efficient way for a young investor to get a head start on retirement savings.
Use of UGMA can affect the tax obligations of the parent or guardian, depending on the size of income from the investment. If the minor makes more than the $1,800 limit, the income of the minor may be taxed at the same rate as that of the parent(s).