Investments can be attractive alternatives to bank savings accounts as a way to earn money. They come in different varieties, and they may be sold by banks as well as by brokerage firms and other financial institutions. You can make money on investments—often more than you can earn on bank deposit accounts—by selling them for more than you paid for them or by earning dividends or interest. But investments also involve more risks than bank deposits, including the possibility that you could lose some or all of your money if the investment doesn't perform well.
Some of the more popular types of investments to consider (with a parent or guardian if you are under 18) include: Stocks, which are shares in the ownership of a company. If the company does well, you might be able to sell your stock for more than you paid for it. But if the company does poorly and you want to sell your stock, you might lose money.
Bonds, which represent a promise by a company or another organization to pay a specific interest rate for money you leave with it for a certain time period.
Mutual funds, which are professionally-managed collections of money from many different investors. Each mutual fund buys a variety of stocks, bonds or other investments. Some mutual fund accounts can be opened for an initial investment of $250 or less.
You might find it interesting to invest in companies whose products or services you use and like. But it's especially important to remember that investments involve risks and are not insured by the FDIC—not even the investments sold at FDIC-insured banks. "When you're willing to take some risks for your money to grow—and you believe it won't hurt you if some or all of your money is lost—then you're ready to move from saving to investing," said James Williams, an FDIC Consumer Affairs Specialist. "But before any young person wants to invest money it's important for them to consult with their parents, do some research and consider getting professional advice." For more information about the basics of investing, including the potential risk and rewards, start at the U.S. Securities and Exchange Commission's Web site "Beginners' Guide to Investing" at www.sec.gov/investor/pubs/begininvest.htm.
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