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Investing for Dreams: When it comes to investing, teens have the greatest advantage

by • January 3, 2014 • 2014, Expert Advice, January 2014, Money Matters, Teens and Pre-Teens

Teenagers, as you begin to pursue your dreams and goals, it’s important to remember that even though wealth may not be your focus, building it may just be what allows you to achieve those dreams. Now is the best time to make smart money choices and start investing for a strong financial future. Here is a brief introduction to the exciting – yes, exciting – world of investing.

COMPOUNDING

Just remember: Time is your best friend. 

The sooner you start investing, the more time you have for your investments to grow and compound. When you invest money, you can earn a return on that money. Simply put, compounding is when you don’t just get the benefit of the return on your money; you get the benefit of return on the return. When you retire or achieve financial independence, you won’t be relying purely on the money you invest today. You’ll mostly be relying on the reinvested earnings of your early investments; the compounded return on your return.

DIVERSIFICATION

Just remember: Don’t put all your eggs in one basket. 

Spread your investment dollars across a variety of investment types. Although it cannot ensure a profit or a prevention of loss, if one kind of investment does poorly one year, other kinds may do well. Good diversification can help reduce the volatility (big ups and downs) of your total investment portfolio over time.

Here are some ways to invest:

STOCKS

Just remember: You can own a piece of Facebook.

Have you ever wanted to own part of a company? Stocks are shares of company ownership. Just like owners of the company, your investments will be based upon the market’s valuation of your stock. The value of the stock will rise and fall with the company’s fortunes and the public’s willingness to own that stock. You can own stock in large, mid-sized and small companies.

BONDS

Just remember: You can lend your money to the USA.

Ever thought of collecting interest from money you lend? Bonds are debt securities issued by corporations or government entities. Essentially, they can borrow money from you. Bonds can pay you a fixed amount of money each month or year and are redeemed (considered “paid back”) after a certain period of time. The total amount of money you get back is more than what you paid for the bond. The risks with bond ownership are the issuing company/entity can default on its payments or face devaluation by the public if they have other credit issues. Bonds also react inversely to interest rates, since as interest rates rise bond prices generally fall, and vice versa. If a bond is not held to maturity it may be sold for a substantial gain or loss.

ALTERNATIVE INVESTMENTS

Just remember: It’s a big world out there.

Alternatives are types of investments that historically have no correlation to the stock market. Commodities such as precious metals, energy products, currencies or REITs (portfolios of real estate assets) can add diversification to a portfolio of investments. Please remember that every alternative investment carries its own risks including the potential for loss of any money invested. Alternative investments may not be appropriate for all investors and should only comprise a small percentage of a balanced portfolio.

SAVE OR SPEND

Just remember: It’s not what you make, it’s what you save. 

Today it’s tempting to see wealth in terms of all the great stuff we can buy and consume. However, real wealth is measured in terms of net worth (basically, how much money we have saved), not the stuff we can buy. You have a huge advantage in building your personal wealth and, in turn, the ability to live out your dreams – you have the advantage of time. Take this advantage and start building the future of your dreams today. Before you make a choice with your money, get informed, consider all your options and talk to a financial advisor.

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Securities and advisory services offered through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser.  Integrated Capital Management and NPC are separate and unrelated companies. Government bonds are guaranteed by the U.S. Government and, if held to maturity, all bonds offer both a fixed rate of return and fixed principal value.

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