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Making Cents
(CNN) -- You've got income coming in from your part-time job and then there's that cash you've stashed in your savings account. Perhaps you've considered how to make your money work for you so you don't have to keep working for your money, but you're not so sure what investing is or how to do it. Welcome to Investing 101. Interesting choicesSimply put, investing is a way to get more out of something than you've put into it. You'll make money when something you buy increases in value or when you earn interest - a fee banks or government agencies pay for borrowing your money. Investments can be short-term or long-term. Anybody who wants their money back, and whatever profit it has generated, pretty quickly - say, a month to three years - should go short-term. Savings accounts, certificates of deposit, savings bonds and treasury bills are short-term options that pay interest. Long-term investments are for those who don't plan on using or needing their money for a while. They include real estate, commodities, collectibles and stocks. You only earn money when they appreciate, or increase in value. To decide which is best, "… define your objectives," said David Brady, senior portfolio manager at the Stein Roe Young Investor Fund. "If your objective is just to save for a bicycle, you might not want something volatile like stocks." But if the money is for later in life, stocks are the way to go. "If they started investing $25 a month when they were 5, they could have $1 million by the time they are 62," Brady said. "And if they started with $45 a month, they could have $2 million." Pick of the youngNot many people have the large sums necessary to buy property. Commodities like gold and foreign currency are way risky because their values rise and fall dramatically. Collectibles like baseball cards and stamps can be a hassle because you've got to keep them in great shape. Increasingly, young people are buying stocks. Stein Roe is an Illinois firm dealing specifically with teen-aged and younger investors. In 1994, it had 4,056 investors. By the end of 1999, the client roster grew to more than 200,000. Major brokerage companies like A.G. Edwards & Sons, which has been around since 1887, are aware of that trend and they are trying to woo young people. Their Website has activities for kids as young as 2. It's called Big Money Adventure and features cartoon-like characters. But there is information for teenagers too. "We feel that investment education is a very important thing," said John Auble, Website content manager for A.G. Edwards. "It's something you don't see a lot of and it's not taught in schools." And a stock is?A stock represents a portion of ownership in a company. People who have stocks own pieces, or shares, of a company. Stockowners are often called shareholders. A stock can cost as little as 50 cents or as much as several thousand dollars. Shareholders make a profit when they buy a stock and then its value increases. Of course, the opposite is true as well. If you buy 40 stocks valued at $5 each, but then their value drops to $1 each, you've lost $160. When a stock value falls, that isn't necessarily a time to sell. "You should understand what you own and why you own it," Brady said. "If … the fundamental way they do business has not changed, hold on to it. If their costs of doing business are going up or there's a new competitor, maybe you should sell." If nothing significant has changed about the company, but the stock value is decreasing, maybe you should buy more of it, Brady said. It will likely rise again and you would have gotten it at a cheaper price. Follow your moneyA market index tracks stocks by company type or industry. There are American and international indexes. In the U.S., the Dow Jones Industrial Average is the most famous index. "The Dow" is determined by placing the stock value of 30 large, blue-chip companies in a special equation to determine an average value. If that average is higher than the day before, the market is going up. If it's lower, the market is falling. Other indexes include the NASDAQ, S&P 500, Nikkei and Topix. Knowing how to read the indexes is cool, but Brady advises not to get too bogged down in it or let it sway your decisions. That "can create confusion and it takes a lot of time," he said. "Overall, study the fundamentals of a company, buy quality, monitor it and hold on to it." RELATED SITES: Big Money Adventure Choose Your Guide | ||||||
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