Ever thought about investing? Whether or not you said yes, I want you to think about any money you currently have but aren’t using. Maybe you received money for a birthday present but haven’t spent it yet. Why not invest that money rather than spend it on a video game or leaving it in a checking account not earning much interest. Investing can be fun and financially rewarding. Investing allows your money to grow in value. This is where investing comes in handy! 

The goal of investing is to put your money to work in one or more types of investment vehicles, such as stocks, bonds, and mutual funds/ETFs (electronic trading funds/indexes) in the hopes of growing your money over time. Senior Vice President, James S. Lin, a personal wealth advisor at Merrill Lynch, has many investing tips to offer teens who are first starting to invest and why investing is important.

You should start learning about investing and work with your parents about opening a joint investment account or asking your parents questions about investing. Learn about investing by reading newspapers like the Wall Street Journal, articles in the stock app on an iPhone or websites like MarketWatch, Bloomberg, or Merrill.com.

The most basic kind of investment is a stock, a publicly-traded share in a company’s equity. A public traded share, is a public company that sells shares to investors on a stock exchange giving them part ownership of their company. One can buy an individual stock like Apple Computer (AAPL) or Facebook (FB) or a mutual fund or ETF/Index. Deciding which stocks to purchase might initially appear overwhelming as stock picking is more of an art than a science. “First look at the fundamentals of the stock such as whether a company is a well-known company, profitable, how consistent (volatile)the stock is, what the P/E (Price/Earnings) ratio is, or whether it pays a dividend,” Lin explained. 

James, also states, “Secondly, look at the technical/charting trends to see how volatile the stock is, is it up or down trending, by looking at the stock price chart. Stock could be in a huge uptrend so buying it at a high is a higher risk for a pullback versus buying the stock after it went down from a company-specific event or earnings miss. Thirdly, be careful about investing in a company that is growing rapidly but not making a profit, because fast-growing companies especially tech companies reinvest their profits to grow rather than focus on profitability so the stock price may keep growing though the company is not profitable. Companies like Apple, Google, and Amazon were all unprofitable companies early in their life but grew significantly for market share and now are very profitable.”

In order to analyze a company’s stock price chart, go to your stock app in your phone or search up a company’s stock you are interested in buying. You can identify if a stock is going up if the section and the line of the graph is green and going upwards. You can identify when a stock is losing value, if the line is downward sloping and red.

When you first purchase a stock, you have to be patient as gains in cash will take more than a few months in order to see progress. The main thing to look at to see if you are making money is by identifying whether or not share prices are increasing each day. Let’s say a price for one share is $50 and the price increases to $60 by the end of the month you just made a $10 profit from ONE share. Now imagine what 20 shares could do for you.

What are the benefits of investing? First and foremost, investing can provide future long-term financial security. When you invest your money, either by purchasing stocks /shares of a company or by buying mutual funds/ETFs, your investments may earn money especially over a long period of time.  

Investing early in your life can lead to large gains/growth in your investment through compounding returns because the value of investment returns compounding each year will be dramatic over a longer period of time. Investments made at an early age can reap huge benefits by the time you retire. Also, investing can help you stay ahead of inflation which reduces the purchasing power of your money. 

The stock market can fluctuate a lot over time, which could mean losing money if you are not a patient investor. There are strategies to take on so you can allow you to make more money than losing. As James Lin recommends, successful investing should incorporate a diversified portfolio of stocks, bonds, and cash (asset allocation) and a long term timeframe for your investments to reach your financial goals like saving for a house purchase, college, or retirement.  

Diversification can mean investing in several different stocks rather than putting all your money in one stock. Asset allocation is having a mixed portfolio of stocks, bonds, and cash to lower risk and provide overall consistent, better returns.

In recent months due to the coronavirus pandemic, the stock market has declined significantly on fears of a global recession and the health crisis has created an economic crisis from the shelter-at-home directives impacting the economy. If people are forced to shelter in place, some businesses/industries like restaurants, airlines, hotels have little to no business thus impacting their stock price. If you are a long-term investor, buying stocks of companies that have been hit by coronavirus pandemic could be a buying opportunity. 

In addition, there are certain investment strategies that James Lin expresses are often “overlooked”. He states, “another investment strategy is to invest in value stocks, stocks that have low P/E ratios and may be undervalued. This stock may be a company that hits a rough spot like a short-term hit to their business but is still a good company and will fix whatever problems they are going through and rebound over time. That is why investors buy these stocks because they believe the market has undervalued them.” Investing over time is called dollar-cost-averaging, which is spreading out your investment amount over time like monthly or quarterly rather than all at once reduces the investment risk of buying at highs. 

James stated, “Investing is an art, not a science. There are many ways to do it and not any perfect way. You may not be a master in investing, however you can learn and be good at it over time.” 

Hopefully, you learned something from this article and will try investing on your own or with your parents.