I do not understand Stock please explain?
My daughter told me her friend (12 yrs) has stock in verizon and the money comes out of his college account to pay and the profit goes right back into his fund
Is this a good idea? And if i were to buy stock any reccomendations?
How do i purchase it?
Please tell me what it really is
You will not be doing anything in a legal sense until you are 18 or an emancipated minor. Your 12 year old friend is NOT doing ANYTHING. It takes a parent or guardian acting as a trustee acting on your behalf to do the business of dealing with a broker to handle your trust account. Now, as to what stock IS, well that is simple. You are gambling. You give them money and you get shares of stock in return which represent a portion of the business. If there are 100 shares and you buy 10, then you are in effect a 10% owner of the business. As to why I say this is gambling is this, the price of the stock is determined by how the business is run and the product the business produces. If the management works well and the product sells, the company makes a profit, stock value increases and the stockholders get paid dividends. You can sell your stock and make a profit or take a loss. If you make a profit, it is called capital gains and subject to taxes. If you take a loss, it is called a capital loss and you can take an exemption of a portion of the losses on your income taxes. You need a tax adviser for the details. This is exactly like gambling at a race track. You place a bet, and after the race you win or you lose based on the horse and jockey pair of skills and talent. The same applies when you buy stock, only with stock it can takes YEARS instead of once around a track to find out if you won the bet or not. The stock market is best for long term investment, while the track is great for immediate results. Either way, you are gambling, betting on something to happen to your benefit. As for how much, well the more you invest the bigger the potential return. You can start with a dollar and what are called “penny” stocks which sell for literally that, pennies per share. Or you could go for the gusto and deal with the big boys, the Fortune 500 companies. Companies to not get on that list unless they are doing something RIGHT and it is paying off. However, the more stable the stock, the lower the gains. The more risky the stock, the higher the potential gains. With risk comes greater returns, IF you choose a winner. The problem with risk is the higher the risk the more likely failure will the loss of all you invest. As with betting at the track, do NOT risk more than you can afford to lose. You do NOT gamble with the rent money! Too many people never ask the question, what do I do if I LOSE? If you can NOT afford to lose EVERYTHING you invest, you should NOT be risking ANY of your money. There is a way you can lose more than you take out of your pocket. This is called “buying on margin” in which case you borrow money which you combine with your own to buy even more, thus risking borrowed money. You still have to repay the borrowed money. THAT is exactly like gambling with the rest money, what do you do if you lose? Every investment risks losing everything you invest, EVERYTHING! Fortune 500 companies “have a good track record” (note the gambling reference) and do not go belly up very often but more riskier investments could easily do so. Still, until you are 18 or an emancipated minor, none of this applies to you personally since as a minor you cannot enter into a legal contract which is what it takes to deal with a broker. There is no reason why you can not participate in the decision making process that your trustee engages in with the stock market, it is just that you can do business by yourself as a minor. So, find yourself an agent to act on your behalf. Your parents would be a great place to start. Take a class. Many community colleges and adult education centers have classes in this kind of thing. Do some research. Get qualified and know something of the subject of big business and the stock market. Starting your own planning for your retirement now would be an excellent way to avoid the problems many have TODAY because they did NOT do the research to prepare themselves when THEY were kids.
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