Newsletter: August, 2008

Investing: Risk and Reward

There are lots of other places to invest your money–but some of them can be risky. Learn the strategy that’s right for you in this issue of The Vault from Biz Kid$!

Risky Business

“Risk” just means “the possibility of something bad happening.” The big risk in investing is that you will lose some or all of your money. Here’s the catch: if they pan out, riskier investments can provide higher returns than safe investments. Otherwise, nobody would bother investing in anything risky. But remember the old saying: with the riskier investment types, only invest as much as you’re willing to lose.

Different Investments, Different Risks

Investments like FDIC- or NCUA-protected savings accounts are low-risk, because they make it almost impossible for you to lose your money. Stocks, on the other hand, are quite risky because you can easily lose some or all of what you put in.

Your Personal Risk Tolerance

Some people are okay with taking risks, while others like a sure thing. How much risk you’re willing to take on is your “risk tolerance.” Knowing your risk tolerance can help you think about which investments are right for you. Here’s a short quiz to get you started!

Would you rather…

For every answer you chose from column A, give yourself 1 point. For every answer you chose from column B, give yourself 2 points.

5 points: You like to play it safe.

6-7 points: You take a chance now and then.

8-10 points: You’re a real risk-taker!

Keep it up!

Investing is like any other financial discipline–the most important thing is to have a plan and stick to it. Saving early and often are more important than “striking it rich.”

If it Sounds Too Good…

One last thing: especially in the Internet age, there are lots of scams out there. If anybody promises you guaranteed riches for nothing, they’re probably trying to take you for a ride. And that’s definitely a bad investment!

A Field Guide to Investments

Ask John Paul

Q: I’d like to try investing.  How do I get started?

-Cece L., Indianapolis, Indiana

A: One way to try investing is by buying something tangible like silver. It’s relatively inexpensive and you don’t have to have a special account to buy it. Try buying just one ounce to start. Make a habit of checking the price and calculating how much you have gained or lost. Learn what affects the price and try to figure out if it will go up or down based on what you hear in the news. It’s a fun way to learn the basics of investing without risking too much–and while you keep putting money in your interest-earning savings account.

John Paul Pigéon is a 12-year-old financial guru from Fort Worth, Texas who helps kids learn about money and business. Click here to visit his Web site. Send your question to askjohnpaul@bizkids.com. It may be selected for our next newsletter!

Andy started investing early–at the age of 6! Even though he’s still not quite 18, he’s an active investor through the help of his dad. Andy shared his investing advice and experience with us.

How did you get your start?
I started out helping my dad when I was 6. Now I invest in stocks and money market funds–still with my dad’s help. He lets me manage most of my investments.

Tell us about an important moment in your investing history.
When I got my bar mitzvah money, I decided to invest it and build it instead of buying an asset that would just lose value like a car.

I heard you compare investing to golf. How so?
Well, one thing is that as you get closer to your goal, you use a smaller club and make more careful shots. The same goes for money–if you’re close to needing it, like retiring or having to pay for college, you put it in less risky investments and are more careful with it.

What’s the biggest investing mistake you’ve made?
Not protecting my investments. Sometimes, you make 15% or 20% and you get greedy and think it will always keep going up. It’s a good idea to sell some of your stock when you’ve made a healthy profit to make sure you get to keep some of it.

How do you learn about what to invest in?
The stock market revolves around what’s going on in the world. Watch the news and you’ll learn a lot. For instance, if there are problems in oil-producing regions, the price of oil usually goes up. That means consumers might start buying more fuel-efficient cars. All of that affects investment prices.

What’s your advice to younger investors?
Don’t be afraid to take risks–you have a long time before you’ll need the money, so if you make a mistake now, it’s not going to be a big deal.

Do you know a Biz Kid who should be featured in our newsletter? Send him or her our way at profiles@bizkids.com!

Warren Buffet, one of the world’s most successful investors, bought his first share of stock at age 11–and says he regrets starting too late!
http://findarticles.com/p/articles/mi_m0EIN/is_2008_July_2/ai_n27879089

Check out these sites with tons of info on investing for the youth:
http://library.thinkquest.org/3096/
http://www.younginvestor.com/index.asp
Here’s a great article to share with your parents about how they can help you get started with investing:
http://www.fool.com/money/investingforkids/investingforkids.htm
And make sure to visit Biz Kid$ to make sure you don’t miss out on new shows:
https://bizkids.com