4 Gamechangers for Teen Investors

The explosion of teen investors in the stock market is due to 4 amazing market developments in banking and online stock trading. We explore these 4 developments in this article. As a reminder, minors can not invest in the stock market without a custodial account set up by a parent or guardian (see our list of online brokers here).

The 4 gamechangers for teen investors are as follows:

1. The explosion of online banking;

2. The reduction or elimination in minimum balances stockbrokers require in a trading account before they can buy and sell stock for you.

3. The reduction or elimination of fees charged by stockbrokers each time they buy or sell stock on your behalf; and

4. The ability to buy fractional shares through stockbrokers

Learning how to invest as a teenager has been greatly facilitated by these developments which we discuss further in this article.

The Explosion of Online Banking

Online banks are a gamechanger for lots of savers. In the past, traditional banks made it difficult for you to open up a savings or checking account if you had less than a few hundreds of dollars in your name. In addition, if your bank account balances fell below a certain fixed amount, some of these banks would charge you a monthly fee.

With the arrival of online banks (including online banks started by traditional banks), the minimum balance needed to open an account was drastically reduced and, in some cases, eliminated. For example, at the time of this writing, HSBC Direct only requires $1 to open online savings and checking accounts, while Ally Bank has no minimum for either a savings or checking account.

What this means is that people who don’t have much money with which to open savings and checking accounts can now open these types of accounts without financial stress. Establishing these accounts is necessary for electronically transferring money to online brokers in order to buy financial assets, such as stocks.

Some of the more prominent online banks in addition to Ally Bank and HSBC Direct include Discover Bank, E*Trade Bank, TIAA Bank, and CIBC Bank USA.

There was a time when you had to maintain a balance of between $500 and $2,500 in trading accounts with stockbrokers in order that they could buy and sell stock on your behalf.

Some of the more prominent online banks in addition to Ally Bank and HSBC Direct include Discover Bank, E*Trade Bank, TIAA Bank, and CIBC Bank USA.

These days, fortunately, many of the major online brokers currently require no minimum balance.

For example, E*Trade, Charles Schwab, Fidelity, Merrill Edge, and many others, all have a no-minimum balance requirement. Overall, things have changed dramatically to the benefit of beginning investors who may not have lots of money to put into the stock market.

Elimination of Trading Costs

Trading costs, too, have come down dramatically in recent times. Just a few years ago, brokers were charging anywhere from $4.95 to $6.95 each time you asked them to make a stock trade on your behalf. However, a major shift has occurred which has resulted in the emergence of no-fee trading accounts.

One company, Robinhood, began offering a brokerage service to help you buy and sell stocks without paying a dime in commission and without a minimum balance – all through a mobile app. This forced many of the major online brokers to eliminate commissions and continue to reduce their minimum balance requirements.

At the time of this writing, major online brokers such as TD Ameritrade, Fidelity, Charles Schwab, E*Trade, Merrill Edge, and others, have made similar moves in order to keep pace with Robinhood and other low-cost online brokers.

New and economical online brokers are good news for people with smaller amounts of money to invest and I hope, and believe, that trading costs will reduce further with all reputable online brokers.

The Introduction of Fractional Shares

Some stocks are so expensive (with some in the hundreds to thousands of dollars per share) that they are out of the reach of an investor with little cash. One solution offered by brokers is to allow investors to buy a fraction of a share. This lets you buy any stock you choose according to your means.

To see the benefit of buying fractional shares, consider what you would do if you wanted to buy the stock of the parent company of Google, Alphabet. The current cost of a share of Alphabet is about $1,500. Chances are that you probably don’t have that kind of loose change in your couch cushion, but you may easily be able to find $30 to invest in Alphabet stock.

This translates to 2% of the $1,500 ($30 = 2% * $1,500) of Alphabet stock. Some newer online brokers that allow the buying and selling of fractional shares include Robinhood, Stockpile, Interactive Brokers, and M1 Finance. However, some of the bigger traditional brokers with an online presence such as Fidelity and Charles Schwab have also entered the fray. I believe that this type of offering to investors increases the accessibility of stocks to the smaller investor.