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BRIDGET: Hey Million Bazillionaires. Earlier this week we answered a question about how stocks make money.
RYAN: Yeah, hope you liked that episode and learned something from it. Since you’re all so interested, we also wanted to share a story from a stock-market-fascinated-listener who, with help and guidance from his grownups, tried out some stock market investing.
JOSHUA: My name is Joshua. I live in California. Before I started investing, my money wasn't really doing anything. If I invest, I can get more interest than if I put my money in a bank.
BRIDGET: Remember, banks pay you INTEREST for keeping your money in a savings account. But the amount of interest you can get at a bank is usually considered kind of on the modest side.
JOSHUA - I'm not really saving up for anything in particular, but I'm saving up for an opportunity to do something, if like, there is something I want to do. I wanted to invest.
RYAN: This is grown up stuff … when it comes to investing you always need a trusted grownup to help.
JOSHUA: I made a deal with my parents, and I wanted to invest, and then my dad said, well, you can either invest in a stock, or you could invest in a bank of dad.
RYAN: The bank of dad??
BRIDGET : -So this isn’t a real bank … this is Joshua’s dad, Michael, pretending to be a bank …
JOSHUA: the Bank of dad basically is saying however much money you put in the bank of dad, at the end of the year, he'll give you, like, a guaranteed amount of interest.
BRIDGET: Let’s hear from Michael, Joshua’s dad, about how this all came about.
MICHAEL: I was pretty excited when Joshua asked me if he could invest his money. I wanted to reward him for saving and this seemed like a good learning opportunity. Ultimately, I wanted to let Joshua make a choice about risk and reward and encourage him to think of investing as a long term activity, so I offered a certified deposit with the bank of dad, which guaranteed a 6% rate of return.
BRIDGET: Quick vocab break! Certified deposits exist at real banks, not just the bank of Dad. They’re also called a C.D. It’s lending your money to a bank and making a pinky promise to not touch it for a certain amount of time.
RYAN: Why would anyone do that?
BRIDGET: In exchange, the bank is going to give it back to you at the end of a certain amount of time but with more interest than you would have made just leaving your savings in a deposit account. So in Joshua’s case, the bank of dad would give Joshua 6% interest.
RYAN: That seems like a pretty sweet deal! So Joshua, did you choose the bank of dad or your original dream of investing in the stock market?
JOSHUA: I chose the stock market rather than bank of dad because I wanted to see if I could actually do well in buying and selling stocks.
BRIDGET: I think Joshua is REALLY interested in the stock market!
JOSHUA: I invested in an ETF for the S&P500.
BRIDGET: Another Vocab break!! An ETF stands for Exchange Traded Fund. It’s a lot like investing in an index fund, so that’s like owning a variety pack with a bunch of tiny shares of many different companies. The idea is that you spread out your risk and diversify those stock investments.
JOSHUA: I picked this one because my dad said it would probably give more interest than a certified deposit.
RYAN: Joshua picked a stock market investing tool that allows him to match the S&P 500. Which is again, a long list of publicly traded companies based in the United States. So he’s not trying to do better than the markets, he’s trying to basically match what they’re doing.
JOSHUA: I would say I was checking the price, maybe like once a week, two times a week. If the stock went up or down I would feel either good or bad kind of …it's really stressful when you invest.
RYAN: Oh buddy, I completely understand! Up and down! But that’s why the experts say…don’t invest more than you can afford to lose. And also, maybe don’t look at it every day. Stocks are supposed to be a long term investment.
BRIDGET: Alright so let’s hear from Joshua’s grownup, Michael. Michael, what did you think of Joshua’s experiment?
MICHAEL: Overall I think the project has been very successful. Having real money involved makes the lesson very tangible. Investing is a really complicated topic, but I think the best way to learn is to try it and see what happens. You might lose some money, but I like to think of it not as losing money, but buying a lesson. Just try to make sure the lesson isn't too expensive.
BRIDGET: And Joshua, what did you learn?
JOSHUA: I would like other kids to know that it's okay to invest just don't put all of your money in one stock, or don't put all of your money in a risky stock, or don't put any money like in stocks if you can't afford to lose it.
RYAN: Well there you have it. A Million Bazillionaire who has invested in the stock market with his parents help of course!
BRIDGET: If we didn’t answer your question or you have MORE questions, send those to us at marketplace dot org slash million. And if you want to learn more about stock market, check out the episode in the feed now how do stock markets make money. Find it wherever you get your podcasts!
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