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Multiply Your Money
by Lori B. Murray
At
age 17, Dan Stover of Upper Arlington, OH, has been learning about the stock
market since he was in the eighth grade. About that time, a teacher
explained the concept of compound interest — when the interest your money
earns in an account starts earning money too — and Dan was convinced to
get involved. "I saw that the stock market was consistently traveling
six to seven percent above the interest rates I was getting at the bank. I
didn’t want to be left behind."
School and sports left Dan little time to research individual stocks, so
he decided to invest in mutual funds. He used money he had in savings, along
with money his parents had invested for him at birth. Today Dan earns a
minimum of $250 to $300 annually on his investment.
In the meantime, Dan continues to learn from experience. "Sometimes
you have to risk a little to learn a lot," he says. He suggests getting
involved in a stock simulation game at school or on the Internet. Because
these investment simulations are not real, you tend to be less cautious,
allowing you to learn more than if it were real money.
Don’t underestimate the power of research, says Dan. "Really look
at what the company is doing on paper and predict what they will do in the
future."
Stock Ownership 101
Q: How does buying stocks work?
A: A stock is a certificate that represents ownership in a company.
Investors who buy stocks are called stockholders or shareholders. Investors
who own stock in a company can make decisions regarding that company, and
the number of votes they get depends on the number of stocks they own.
Q: Why do people buy stock?
A: Shareholders can profit when the company profits. If you buy shares in
McDonalds, for instance, and the company introduces a new sandwich that
everybody loves, both you and the company will likely make money. But if the
company does poorly, the value of the stock goes down and you could lose
money.
Q: How do investors know which stocks to buy?
A: Choosing the right investment requires careful research. Before
investing, learn as much about a company as possible through newspaper
articles and other sources to find out if:
- the company markets a product or service that is popular; or,
- the company has much competition.
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