The Amazing Growing Dollar
If you wanted to start up a leaf raking business but needed money to buy tools and do some advertising, your mom might agree to invest some money in your company. She might agree to give you $50, which you would not have to repay, as long as you shared part of your profits with her. She gives you the $50 which allows you to buy good tools and do a lot of advertising. You get a lot of work and start raking in the dough. You pay her ten cents for every dollar you make. The better your business does, the more money she makes.
This is how investing works. People invest money in companies. The money allows the companies to grow. As the companies grow, they pay money to their investors.
Investing is a neat way to make money without doing any work. However, it can also be a way to lose your money quickly! If you fell out of your tree house and sprained your wrist and could not rake any more leaves, your mom wouldn't get any profit from your business. She would have made a bad investment. Investments can be good or bad, so it is important to be knowledgeable before you invest your money.
A 200-year study of the stock market showed that the average yearly return (yearly increase in value) for stocks was 9.5 percent. Some stocks earn more and some earn less, but on average this is how the stock market grows.
Are You the Investing Type?
Are you the type of kid who can be an investor? There are several things you must think about before seriously considering investing. Examine your own personality. Do you find the idea of buying stock in a new company that may (or may not) come up with the next big electronics miracle exciting? You could make some real money! But what if the company you invest in fails and you lose your money? Would you be very upset? How much money can you invest? Based on your income, allowance, gifts, babysitting earnings, and so on, if you can set aside even $100 a year, it might be worth it to you to invest this money.
What are your goals? Do you want to buy Christmas presents for your friends and family? If so, then investing is not the way to go. To see the results of your investments, you must be willing to be patient and wait. If you are planning on going to college in another eight years, then investing your $100 a year may be something for you and your parents to consider. You wouldn't be able to pay for your whole college education, but you just might be able to cover the cost of your books or set up an account for spending money while you're in college.
Many kids don't realize the amount of time and effort that goes into investing. You earn your money by taking on the job of investing, but overnight success is rare. If you're looking to get rich quick, forget it. One of the keys to investing is patience.think five years or more! Also, you must remember that by investing you are tying up your money. If you want your money where you can get at it easily, then perhaps a savings account is the best option for you.
Stock Market Secrets
A stock is a share in a business. Here are some things you should know about stocks:
- When a new company feels a need to expand, it may not have the money to do so. A decision is made to "go public."
- By going public, a company decides to sell shares (stock) in its business. The people in charge of the business now have to report to the shareholders, the people who bought stock, who each own a tiny part of the company.
- The initial public offering (IPO) is the first time stock is sold by that company. Investment bankers buy up the stock and then are responsible for selling it. It is interesting that this is the only time the company makes money from selling its stock. From this point on, the buying and selling of stock is in the hands of the investment bank and brokers.
- The shares of stock are sold to investors. Investors come from all walks of life. They may also include groups other than individuals.for example, institutions or other businesses.
- Businesses that make a profit pay dividends to their stockholders. Those companies that make high dividend payments to their stockholders every year are called income stocks. People buy income stocks so that they can depend on a steady income from their shares.
- Stocks are traded on exchanges, special places where stocks are bought and sold. The New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) are the primary exchanges in the United States. The National Association of Securities Dealers Automatic Quotation System (NASDAQ) sells stocks that are not listed with an exchange. These are called over-the-counter (OTC).
- A person who buys and sells stocks for a client is called a broker.
When people talk about the stock market, they mean the entire industry of selling and buying stocks. The stock market is deeply tied to our economy. When the economy is doing well, prices of stocks go up. The stock market can also affect the economy. If the stock market prices fall, the economy can be negatively affected.
People make money from stocks, not just from the dividends. Some people buy stocks and wait for them to increase in value. When they do, they sell them for a profit. The key is to guess which stocks will increase in value and to sell them before their value goes down. If you want to get the money you put into your stocks back out, you must call your broker and have her sell them. You will get the price they are trading for that day, which could be higher or lower than you paid. The stock market can be a risky business.
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