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.Show your teen a sample stock listing and explain the basics of reading it.
|16 1/4||9 3/4||A Plus||...||...||dd||393||13 3/8||13||13||-3/8|
|10 1/2||4 3/8||AAON||...||...||13||36||5 1/8||4 3/8||4 1/2||+1/8|
|15||10||ABC Bc s||.40||2.8||11||443||15||14 1/2||14 1/2||-1/4|
|27 5/8||17 1/8||ABC Rail||...||...||19||4||24 3/4||24 1/2||24 1/2||+1/4|
|55||10 5/8||ABR Int s||...||...||cc||1824||53 1/4||53 3/4||55||+7/8|
|19 3/4||12||ABT Bld||...||...||14||194||19 1/4||18 1/2||19 1/4||...|
|30 1/4||13||ACC Cp||...||...||dd||1971||29 7/8||28 5/8||29 5/8||+1 1/8|
|19 3/4||9 1/8||ACT MI||...||...||93||175||13 7/8||13 1/2||13 7/8||+1/8|
|27 1/2||5 3/4||ACT Net n||...||...||dd||2733||24||22 1/4||23 7/8||1 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:
- Dividend. This reflects the latest annual dividend paid by that stock on each share owned.
- Yield. This is the stock's latest annual dividend expressed as a percentage of that day's price.
- Price/earnings ratio. This is the price of the stock divided by the earnings reported by the company for the latest four quarters.
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.
More on: Teen Behavior and Discipline
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.
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