What if I (the adult) don’t know anything about the stock market?

Why use a child’s own money instead of running a “paper portfolio”?

Why not use individual stocks?

How can a child be encouraged to save?

How much will it cost me (the adult)?

What happens when the value of the account gets too high?

What is a stock market index?

What if I (the adult) don’t know anything about the stock market?
Perfect! Take this opportunity to learn along with your child. The mechanics of this program are simple to follow and require no knowledge of the markets. As you and your child track their investment portfolio, you’ll also become more familiar with how the stock market works.

Why use a child’s own money instead of running a “paper portfolio”?
A child’s own money means a lot to them – even if the amount is small by adult standards. Since they’re putting their own money at risk, they’re forced to make the same types of decisions they’ll face as adults.

Why not use individual stocks?
This kit is designed to promote good investing habits. Buying individual stocks can be instructive, but it violates one of the more important investment principles – diversification. Using the two most common market indexes makes it simple to track. And each index is diversified among a number of stocks.

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How can a child be encouraged to save?
Tell them that over the last 20 years, the market has gone up an average of about 12 percent. At that rate, if they invest half their age per week starting when they turn 10, they would likely have over $5,000 by the time they started college.

How much will it cost me (the adult)?
It depends on the amount of money the child invests and how the markets perform. The Nasdaq’s average annual growth is about 15 percent. In 1999, the Nasdaq had its largest annual gain, 85.6 percent, but in 2000 it plunged 39.3 percent.

What happens when the value of the account gets too high?
You might want to set a limit that the child can invest – either weekly or a total dollar ceiling. Remember though that one of the benefits of the project is to encourage saving. When the account reaches a certain level, some of the money can be withdrawn and invested in the child’s name in a mutual fund or other diversified investment.

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What is a stock market index?
A stock index is a selection of stocks whose performance as a group is used as a way to measure overall investment results.

The Dow Jones Industrial Average is the average value of 30 large, industrial stocks. The Nasdaq Composite Index consists of over 5,300 companies, representing major industry groups such as computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. Nasdaq companies tend to be smaller and newer companies than the companies that make up the Dow.

These averages can be used as a guide to how the economy is doing as a whole.