Hey there, teenagetraders! 🌟 If you’re diving into the world of investing with a custodial account, it’s super important to understand the basic types of investments. Today, we will break down three key types of investments: stocks, bonds, and ETFs.

Stocks

What They Are: When you buy a stock, you’re buying a small piece of a company. Think of it as owning a tiny part of your favorite brand, like Apple or Nike.

How They Work: If the company does well, the value of your stock goes up, and you can sell it for a profit. If the company doesn’t do well, the value goes down.

Why Invest in Stocks: Stocks can offer high returns, but they also come with higher risk. It’s like riding a roller coaster – thrilling but with ups and downs.

Bonds

What They Are: Bonds are like IOUs. When you buy a bond, you’re lending money to a company or the government, and they promise to pay you back with interest. Bonds are usually fixed income assets, meaning they pay you a fixed return. Examples of bonds include the United States Treasury Bonds, which have a maturity date of 30 years.

How They Work: Bonds pay you interest over time and return your initial investment when they mature (reach the end of their term).

Why Invest in Bonds: Bonds are generally safer than stocks. They provide steady income and are less likely to lose value, making them a good choice for balancing risk in your portfolio. Bonds from well rated governments are considered safe bets to many.

ETFs (Exchange-Traded Funds)

What They Are: ETFs are collections of stocks or bonds that you can buy and sell like a single stock. They often track an index, like the S&P 500. One such ETF is $SPY.

How They Work: When you buy an ETF, you’re investing in a bunch of different companies or bonds all at once. This helps spread out your risk, which gives you a safer return.

Why Invest in ETFs: Have you ever heard of “don’t put your eggs in one basket?” ETFs offer diversification, meaning your money is spread across many investments, reducing risk. They’re also easy to trade and usually have lower fees than mutual funds.

Why These Matter for Your Custodial Account

Custodial accounts are a great way to start investing early. By understanding stocks, bonds, and ETFs, you can make smarter choices about where to put your money. Here are a few tips:

Mix It Up: Don’t put all your money in one type of investment. A mix of stocks, bonds, and ETFs can help balance risk and reward.

Do Your Research: Learn about the companies or funds you’re investing in. The more you know, the better decisions you can make.

Think Long-Term: Investing is a marathon, not a sprint. Be patient and let your investments grow over time. Go to Compound Interest Calculator | Investor.gov to see how a small, but safe, return can give huge results. For example, an initial investment of $0 with $100 contributed every month will result in $700,000 by the time you retire.

Conclusion:

The different types of investments might seem complicated at first, but with a bit of knowledge and practice, you’ll get the hang of it. Happy investing! 🚀