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Teach Your Teen the Art of Investing

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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.

Show your teen a sample stock listing and explain the basics of reading it.
52-Week   ABC     
High Low Stock Div Yld
P/E Sales
High Low Last Chg
16 1/49 3/4A Plus......dd39313 3/81313-3/8
10 1/24 3/8AAON......13365 1/8 4 3/84 1/2+1/8
1510ABC Bc s.402.81144315 14 1/214 1/2-1/4
27 5/817 1/8ABC Rail......19424 3/424 1/224 1/2+1/4
5510 5/8ABR Int s......cc182453 1/453 3/455+7/8
19 3/412ABT Bld......1419419 1/418 1/219 1/4...
30 1/413ACC Cp......dd197129 7/828 5/829 5/8+1 1/8
19 3/49 1/8ACT MI......9317513 7/813 1/213 7/8+1/8
27 1/25 3/4ACT Net n......dd2733 2422 1/423 7/81 1/4

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.
Tuning In

You might consider forming a Family Investment Club. Family members can “buy into” a percentage of the club. Each club member can participate by researching various stocks or mutual funds, and the family decides together how the pooled money should be invested. If you decide to do this, consider seeding the club with a fair—but not overly generous—amount, so you can relax and take a back seat. If you try to coerce any decisions, your kids will sense it immediately and will become disinterested. The key to any type of learning experience is giving your kids as much “rope” as you can without letting them hang themselves.

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.

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Excerpted from The Complete Idiot's Guide to Parenting a Teenager © 1996 by Kate Kelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit Amazon's web site or call 1-800-253-6476.


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