With many people going off to college or to begin careers, it is important to know how you can invest in the stock or bond markets. Having a second income in college or solid retirement funds is worth investing not only your money, but some of your time in learning how to invest. There are many positives and negatives to each of the choices.
Investing in bonds are when you give your money to a company or the government and after a certain period, the bond will mature. They give you your money back with interest. The interest can either be paid as the bond matures or all at the end. In total, there are 8 different kinds of bonds that a person can buy. All bonds are rated with letters of the alphabet. It starts with AAA, which is the best rating and goes down to D, which is the lowest. Right now, there are only two companies that are AAA rated, they are Microsoft and Johnson & Johnson. Bonds are very safe with Federal bonds and with Corporate bonds, there is a large rating program. Higher rated bonds are safer, meaning they are less likely to lose money, but they do keep your money for a longer period of time. The smallest amount of time that a bond can mature is a quarter of a year and the minimum investment is $1,000. Since teenagers don’t typically have a large amount of discretionary income in their bank accounts, buying bonds is more difficult and your money is not available for the amount of time that is required until the bond matures.
Stocks are much riskier than bonds, but you can withdrawal your money a lot faster by selling the stocks. There is no rating on stocks, which means that you should do individual research. You should also talk to your financial advisor, to determine if a certain stock is a good stock for you. Many brokerage firms have divisions of people specifically designated for determining the financial position of buying, selling or holding stocks, but other than that there isn’t a rating system. There are many good stocks on the market and sometimes they are grouped together, called index and mutual funds, which have a large variety of stocks in them. Index funds and mutual funds help diversify people’s portfolios, so if one sector or category goes down, then it doesn’t affect the others as much. One major difference between stocks and bonds is that with bonds you can set the amount of money that goes into them. With stocks, you pay the amount of money that the company is selling the stock for. One share of a company can range from a few dollars to a few hundred dollars.
Given the above evidence, stocks are one of the best ways of inserting yourself into the stock market in your teenage years. While there is higher risk involved, the amount of money that you need to be able to invest is much less than bonds. Before you go in the stock market, be sure to consult a licensed professional, so that you make accurate informed decisions.