Teens: The Ins and Outs of Investing
Getting paid for doing work is one way to earn money, but there’s a way you can let your money work harder for you. It’s called investing — buying something today and planning to sell it for more money later.
Learning to be a smart investor is kind of like learning to be a smart Pokémon card collector. To be successful, you need a good strategy: Make a budget, do your research, have patience and understand the “market” — when it’s a good time to sell or when it’s better to wait.
Like collecting, investing can require a long-term mindset and a willingness to take some risks. That means learning how to spot a good deal, avoiding emotional buying or selling — and being realistic about how much money you can actually make.
When Money Makes Money
When people talk about investing, they often mean the stock market. It’s where shares of stock — which are a small percentage of ownership in a business — are
bought and sold. For example, you can buy shares of a company like Disney or McDonald’s — and if the company makes money, your shares can go up in value. You might then sell your shares for more than you bought them for. In some ways it’s like buying a collectible action figure, keeping it safe in its box and then eventually selling it to someone else for more than you paid. The extra money you make is your profit, or the return on your investment.
Managing Profits — and Being Patient
Profits are great — you can use them to buy something else you like, help pay for things like your cell phone bill, add to your savings account or make another investment. For example, if you bought an action figure for $50 and sold it for $100, you could buy two action figures with the profit or try investing in something completely new, like collectible baseball cards. Similarly, if you make profits from selling shares of Disney stock, you could invest in buying more Disney stock or buy shares of another company, like Apple, instead.
Often, you have to have patience and think long-term to be a good investor. For example, let’s say you have a Thor action figure, and it’s not very popular right now. But if a new movie about Thor comes out next year, a lot more people might want to buy your collectible, which would raise its value. So by being patient and not selling too soon, you could have a better chance of making a profit.
Do Your Homework
Investing isn’t a sure thing. When you put $50 into a savings account, you know that $50 will be there when you need to take it out. With an investment, the amount you get could be more — or less — than what you originally paid.
Before you invest in Pokémon cards, consider that a card you bought for $50 might go down in value and only be worth $40 when you sell it. Can you risk a $10 loss for the hope of a $10 gain? That’s what each investor has to decide for themselves — but doing research on the value of your investment can help you make better decisions.
Start Now, Reap Benefits Later
If you’re curious about learning to invest, talk to your parents about it. Learning about the market, knowing how to research options and understanding how to invest is another kind of investment — an investment in you! The sooner you learn the basics, the better off you’ll be when managing your money in the future.