Business & Finance

Investing Basics for High School Students

It is not likely for a high school student to win $2 million in the lottery. What is likely, however, is that a student will make money through small jobs and other miscellaneous tasks throughout high school and college.

There are several basic principles to consider when managing one’s own money. A novice investor must first understand the basics of balancing a checkbook. In a nutshell, one must not spend more money than earned.

It is important to understand the importance of a savings fund. If one does not save a portion of income, one will not have money for special events and emergencies that may occur. Experts at Fox Business recommend saving at least twenty percent of every paycheck for future use and emergency funds.

Although standard savings accounts at the bank are safe and convenient, they do not offer the high return as other investment tools. Typical savings accounts pay only .02% interest rates. This means that if one hundred dollars are put in the bank, it will only make two cents after a year.

This number is so small that it will not even outperform inflation. Inflation is the general rise in the price of goods and services. On average, inflation is two percent per year. Although the money will increase inside a savings account, its value decreases yearly.

Stocks, Bonds, and CDS are all methods available to an investor. Although, these tools are much more risky. On average, they pay significantly higher returns. For example, most blue chip stocks pay annual returns on average around nine percent. In the last year, Apple increased twelve percent. This is one of the top performing stocks in the last year according to CNN Money. Bonds are much safer investments; however, their returns are significantly smaller than the market.

It is important when investing to diversify one’s portfolio. Diversification is important because it reduces one’s risk. To diversify simply means to invest in all sectors of the economy.

Categories: Business & Finance