Teach Your Teen the Art of Investing

Following the Stock

With luck, charting your teen's market investment can become as involving as following your favorite baseball team throughout a season. A benefit of “buying what you know” is that either of you may read articles about the company, and you can check the newspaper daily to see how the stock reacts to various news (like a new product announcement or a poor retail Christmas season).

If you have a home computer with an online service, your teen can set up a customized portfolio to follow his own investments. It makes investing more “real” and more fun.

What do you tell your teen as his $500 investment becomes $475 after the company announces bad news? That's part of the risk and part of the benefit of not needing to sell under pressure. If he hangs in there, history is on his side—the stock will come back up again, and he'll see a profit.

Translating the Financial Pages

To follow the stock, you'll need to show your teen how to read the stock listings. The sample stock listingillustrates what to show him.

The figures in the far left columns report the high and low of the stock price for the previous 52 weeks.

The figures on the far right show the market activity for the stock price for that day. Prices are reported in 1/8-point increments (1/8 of a dollar is 0.125 cents). The following list describes the other elements in the figure:

1. Dividend. This reflects the latest annual dividend paid by that stock on each share owned.
2. Yield. This is the stock's latest annual dividend expressed as a percentage of that day's price.
3. Price/earnings ratio. This is the price of the stock divided by the earnings reported by the company for the latest four quarters.

Another Possibility: Mutual Funds

Though buying shares of a specific company is fun, some people prefer investing in mutual funds. Buying mutual funds is like letting someone else select your stock portfolio: You buy shares in the mutual fund and the fund managers worry about buying and selling the stocks in which the fund has chosen to invest.

The initial mutual fund investment can be as low as $100–$500, and later purchases can generally be in any amount you desire. Like stocks, mutual fund track records can be researched by contacting the fund directly for information; you can also ask a broker or look for information at the library.

Mutual funds are known for their specialty. “Growth” funds take on greater risk with the hope of long-term reward. “Income” funds select stocks for their capability to pay good dividends. Other funds specialize in certain industries, such as utilities or the entertainment industry.

Recently, the Stein Roe Family of Funds has created a Young Investors Fund, which specializes in stocks that appeal to young people. Their financial goal is one of long-term growth, and investors receive teen-oriented information about money management and investing.