7
Investing Terms for Teens
You saved and spent wisely. Now it’s time to watch your money grow! So what
is the difference between saving and investing? Savings accounts typically allow
you to access your money at any time. While they are a secure way to protect
your money, they do not have the potential to grow in value as much as some
investments in stocks and bonds can. Investments can earn greater financial
rewards, but are higher-risk than a savings account. You can lose money!
There are many types of investments and ways to invest. Well-informed
teen investors enjoy the benefits of investing early. Before you start making
investment decisions, familiarize yourself with these key investment terms and
speak to a knowledgeable investment advisor at your local bank or credit union:
Appreciate
To grow in value. When a collectible item or an investment appreciates it is
worth more than you originally paid for it.
Asset
Any valuable item you own, ranging from jewelry, property, stocks and bonds.
Blue Chip Stock
Named after a highly valued poker chip, blue chip stocks are those of
major corporations.
Bond
An investment in which you lend money to the government or a corporation for
a set amount of time and interest rate. The company pays you interest regularly
and at the end of the term, you receive the original amount of money, or the
face value.
Certificate of Deposit (CD)
An insured (up to $250,000) no-risk investment with a bank for a set amount of
time and rate of return, or interest, for the period of the CD. If you withdraw the
money early you will incur a penalty.
Compound Interest
Compound interest makes your money grow without additional contributions
from you. Interest on an investment that is calculated not only on the amount
originally invested, but also on any interest the investment has already earned.
For example, if you put $100 in a savings account and get five percent interest,
after one year you will have $105. During the next year, you will earn interest on
the $105 (not just on the $100 originally invested) and end up with $110.25.
Diversify
Those in the investment world talk about “diversifying your investments.” This
means developing a mixture of investments or “not putting all your eggs in one
basket.” Often, diversification translates to a combination of stocks, bonds and
cash savings. This balance will lower the overall risk of your investments.
Dividend
A payment made by a company to a stockholder to share in the company’s
profits. In a credit union, a dividend is the interest paid on your savings or
share account.
Interest
The amount paid by you, the borrower, to the lender for being able to borrow the
money. Interest is usually expressed as a percent.
Interest Rate
The percentage rate the borrower pays on the amount of money borrowed.
Mutual Funds
An investment fund that combines money from a group of investors to purchase
a range of securities such as stocks, bonds and real estate. Each investor owns
a small portion of the fund’s investments.
Penny Stock
A nickname for an extremely low-priced stock, usually only a few dollars a share.
These stocks are considered quite risky. They are priced low because they have
not yet proven themselves in the market.
Profit
What you earn after subtracting taxes and any costs associated with the
product or service you provided.
Return
The gain you receive from a savings account or investment fund, usually
expressed as a percentage.
Risk
In financial terms, risk is the likelihood that you will lose money on an
investment, or not receive the gain you expect. Often the investments with
the highest risk can also have the greatest returns, which can make them
appealing. Finding the balance between risk and return that is right for you
is an important skill.
Share
A unit of ownership in an investment such as a stock, company or
credit union.
Stock
A share of ownership in a company.
The price of the stock changes
depending on how much investors
want to own it. When the price
goes up, the value of your
investment increases.
Stock Market
A way for you to buy and sell stocks
and for corporations to raise money.
The most notable is the New York
Stock Exchange (NYSE).
Sources:
investopedia.com
sec.gov/rss/ask_investor_ed/saveinvest.htm
