The Daring Book for Girls - Andrea J. Buchanan [116]
Compounding interest is why saving even little bits of money can add up to much more later. However, compounding works against you when you are the one borrowing the money—which is what you are doing when you use a credit card. (It might feel like free money, but it’s not!) When you buy things with a credit card, you’re the one borrowing money, so you’re the one being charged interest—interest that compounds. So if you spend money using a credit card and you don’t pay off your debt every month when the bill comes due, the $100 you spent turns out to cost you much more.
INVESTING: STOCKS, BONDS, AND MUTUAL FUNDS
Putting your money in a savings account is just one way to invest it, or make your money earn money. There are other ways to invest money, but they are riskier, which means while you might earn more, you can also lose some (or all) of your money. Dealing with money means figuring out how much risk you want to take for different kinds of possible rewards.
Stocks
Stock is ownership of a company. When you buy stock (one piece of which is called a share) in a company, that makes you a stockholder (also called a shareholder), and the more stock you own, the bigger your stake in the company. Owning stock means that you own a small piece of the company—so when a company does well and makes money, you make money too. And if it does badly, well, you can lose money instead.
The price of stock can vary from pennies to thousands of dollars, depending on the company. You get to decide when to buy a stock and when to sell a stock. You do this through a stock broker or directly through the company. The idea is to buy low and sell high to make a profit: buying shares of a stock when it’s priced low and then selling that stock at a higher price is one way you make money on your investment with stocks. Stocks are bought and sold—traded—in stock markets, like the New York Stock Exchange, American Stock Exchange, or NASDAQ. You can follow the progress of your stock in the newspaper, on television, or on the Internet.
The other way to make money with stocks is when companies pay out dividends—money paid to all the stockholders every year, the amount of which varies depending on how much a company earns.
Bonds
A bond is basically an “IOU.” When you buy a bond, you are lending your money to a company or government, which they will pay you back later. Bonds give you an interest rate that is generally higher than what you’re going to get in a savings account. The interest is worked into the bond price, and you get both the interest and your money back on the “maturity date.”
Mutual Funds
Mutual funds are another way to invest your money. With mutual funds, a money manager—a person whose job it is to know about investments—decides what stocks and bonds to buy and sell. When you buy into a mutual fund, you buy shares in the fund the same way you buy a share of a single company, but instead you’re putting your money into a big collection (a “fund”) that the money manager uses to buy and sell investments to make money for you. Of course, she keeps a little piece for herself in the end.
Mutual funds are one way to balance out risk, as they involve diversification. When you diversify your investments, you make an effort to not put all your money in one risky thing, or all your money in one safe thing. Instead, you put a little into something more risky, a little into something safe, and a little into something in between.
Marco Polo and Water Polo
ACCESS TO A POOL, lake, pond, creek, river, stream, ocean, or garden hose is critical on a hot summer day. Contests are always fun: swimming stroke races (on your mark, get set, go!), diving, and seeing who can make up the funniest jumps. Cannonballs are great fun, as you run off the diving board, hurl into the air, grab onto your legs, and make a huge splash. Underwater tricks like handstands