September 27, 2020

Teen Stock Trading Seems Dangerous. It Doesn’t Have to Be.

If you’re under 18, you can’t have your own brokerage account and trade without supervision.

It may be tempting to simply open a regular account and trade with your kids, but a better option may be a custodial account, which an adult sets up for a person who is not yet 18. It may come with lower taxes on any gains, although the overall balance is subject to the calculations of college financial aid examiners.

Ask questions about trading commissions, account fees and any minimum balance requirements. Also, inquire about whether you can buy fractional shares of individual stocks that may have high prices for even a single share.

There are some guidelines that you as a parent, relative or mentor ought to set. Stick to basics for the first few years, which means no short sales, options or use of debt to buy on margin.

Then there are the firms’ rules, which adults sometimes ignore. Charles Schwab, Fidelity and TD Ameritrade were pretty much unanimous in this refrain: Don’t give kids the account passwords so that they can trade on their own. And if you do, don’t come running to us for help if they make some gonzo bet that doesn’t work out.

Robinhood, which does not offer custodial accounts, doesn’t want anyone handing out passwords, either. A spokesman declined to comment on how often it needs to shut down accounts because people under 18 have managed to trade anyhow.

Like so many newbie investors in the 1990s, I was set on a straight path by columns from The Wall Street Journal’s Jonathan Clements, who used his own children as guinea pigs in delightful ways.

In an interview this week, he reminded me of one failed test, where he doled out a bit of money and then held a mutual-fund-picking contest. His son lost to both his dad and his sister, but he didn’t seem to care or learn all that much from the experience.

Article source: https://www.nytimes.com/2020/09/12/your-money/stock-trading-robinhood-teens.html

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