Blog post #4: “where should youth invest their money?”

Blog post #4 

For the second step of my research, I will be delving into the different types of investing. Many of our age immediately think of stocks as a form of investment; however, in reality in our economy, many depend on more than just stocks but other forms such as bonds, funds, investment trusts, and more. 

To begin, however, I will start with the most basic investment type of all, stocks. 

Stocks, by definition, are securities/shares you buy in order to own a part of that company, this is where the term “shareholder” was coined, as you become a shareholder of said company(1). Some pros include, you can be in-sink and grow with the economy as the value of a “share” is controlled by how much that company is worth within our economy. Stocks are easier to buy, as, in this day and age of technology, we can buy any amount of stock with just a click of our thumb through apps, or purchase them through an online stockbroker(2). 

The largest pro as a teenager however is not only the accessibility but the affordability. As a teenager you may not be able to purchase a $3000 share of your favourite company off the bat, however, with a stock broker who offers fractional shares, you can buy however much you have of the stock as a fractional share(3). However, due to the partially-unpredictable nature of our economy, there are some downsides.

Some cons include the risk-taking nature of investing in stocks, as the stock-investing world grows more complex with the trends of our economy, the harder it is to invest in the “underdog” stocks. Although there are safe options, such as companies with large returns, and an even larger influence on the economy (companies like amazon, apple, tesla, etc); it is even harder to invest in smaller companies. Therefore, a large part of investing is researching market trends and trying to predict what the next “big thing” will be, to make the largest return with the littlest investment. Major taxing, say you do end up investing in an underdog company and you made amazing returns, congratulations! However, unfortunately, within most countries, there are certain taxing rules which apply to investing in stocks, and the bigger the turnout, the larger the taxing. Competition, as a teenager, we are not only competing with adults, but with major companies, and professionals who trade stocks for a living, therefore, there is a competitive side to investing as a teenager(2). 

In addition to stocks, there are also bonds. Although you may have heard of government bonds during war times, these are quite the same. When you’re investing in bonds there is the “lender” and the “borrower”. The lender; which is the investor, will lend money to a certain institution, government, cause, etc. And said borrower (the company) would pay the money you have invested with an additional fixed interest rate(4). Some pros of investing in bonds include tax benefits, because you’re investing in an institute as a lender, you’re able to gain more tax benefits and have to pay less tax during your payout. Time dependant, when investing in bonds, said company or government must return your money by a certain time, like a debt; as opposed to “selling” a share which you bought yourself as a stockholder during a time of your choosing (selling, at the right time, is one of the main concepts for investing in stocks, because if you sell your stock and gain the money right before there is an increase in value, you may lose hundreds of thousands of dollars)(5). 

Furthermore, we also have funds! Funds are exactly what they sound like, a pool of money budgeted/saved for usage at a later time. You may set up emergency funds, or even trust funds. However, in investing some types of funds include Mutual funds; money given to professional fund managers to allocate into stocks, bonds, or any other asset. ETF which stands for exchange-traded funds, ultimately are mutual funds which are traded in a public setting, as well as government bond funds, which are low-risk investments in comparison to other types of funds. Although funds are a great way to learn to save money and how it can be done, they may not be the best approach to first-time investing as they are usually done through stockbrokers and fund managers and may not be the most beginner-friendly (6).

In addition to regular funds, we also have investment trusts. Investment trusts are mainly popular in the UK and japan, so you may have yet to hear about them, however, they are still a great option to look into and are very interesting to learn about (personally). An investment trust is a public limited company that makes money by investing in other companies. Therefore, when owning a share in an investment trust you are not only investing in one company, but a variety of which said the company has invested as well. A major con for these types of investments is that it is a very high-risk option because if the investment trust itself lowers in value with the stocks that were invested in, not only are you losing money on the stock end but also the company end(7)

However, if you’re interested in such a system, you can also invest in another option! Within the stock market, we have something called market indexes. Now market indexes are like company stocks, however, it is a group of certain companies, stocks, bonds, or other types of investments that are grouped (all of which share similar characteristics). For example, one of the most famous stock indexes includes the Nasdaq 100 which tracks the performance of the top 100 companies which are the largest and most active on the Nasdaq stock exchange. Usually consisting of a variety of tech companies(8).

In conclusion, there are multiple ways to invest your money, some of which weren’t even mentioned in this post! Furthermore, please understand that I am not a professional investor and only want to inform not advise, so anything you find in this post interesting as an investment option, do talk to an adult or do your research, in addition, to see if it is the right fit for you! 

Thanks for reading! 

Sanam Moazed

1. SEC investor ed. (n.d.). Stocks. Stocks | Investor.gov. Retrieved November 29, 2022, from https://www.investor.gov/introduction-investing/investing-basics/investment-products/stocks 
2. Amadeo, K. (n.d.). Pros and cons of investing in stocks. The Balance. Retrieved November 29, 2022, from https://www.thebalancemoney.com/stock-investing-for-the-individual-investor-3306182 
3. Bieber, C. (n.d.). Fractional shares: What are they & how do they work? The Motley Fool. Retrieved November 29, 2022, from https://www.fool.com/investing/how-to-invest/stocks/fractional-shares/ 
4. Fernando, J. (2022, November 1). Bond: Financial meaning with examples and how they are priced. Investopedia. Retrieved November 30, 2022, from https://www.investopedia.com/terms/b/bond.asp 
5. Pros and cons of stocks and Bonds. Capital Group. (n.d.). Retrieved December 1, 2022, from https://americanfundsretirement.retire.americanfunds.com/planning/what-is-asset-allocation/stocks-and-bonds.html 
6. Kagan, J. (2022, October 6). Fund: Definition, how it works, types and ways to invest. Investopedia. Retrieved December 1, 2022, from https://www.investopedia.com/terms/f/fund.asp 
7. Understanding investment trusts│Blackrock. BlackRock. (n.d.). Retrieved December 1, 2022, from https://www.blackrock.com/uk/solutions/investment-trusts/understanding-investment-trusts 
8. Tretina, K. (2022, October 5). What is a market index? Forbes. Retrieved December 1, 2022, from https://www.forbes.com/advisor/investing/stock-market-index/