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Lesson 9

Introduction to Investing

Putting your money to work while you sleep

⏱️ 20 minutes 📚 Advanced 💰 Wealth Building

What You'll Learn

  • The fundamental difference between saving and investing
  • How stocks, bonds, and mutual funds work
  • Understanding risk vs. reward in investing
  • Why time is your greatest investing advantage
  • How to start investing as a young person
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The Big Idea

Investing is how you make your money work for YOU instead of you working for money. It's the difference between trading hours for dollars and building wealth while you sleep.

Saving vs. Investing: What's the Difference?

People often use these words interchangeably, but they're very different:

Saving

Purpose: Short-term goals, emergencies

Where: Savings account, money market

Risk: Very low (FDIC insured)

Return: Low (1-3% per year)

Access: Immediate

Best for: Money you'll need in next 1-3 years

Investing

Purpose: Long-term wealth building

Where: Stocks, bonds, mutual funds, real estate

Risk: Higher (can lose money)

Return: Higher (7-10% historically)

Access: Varies, penalties for early withdrawal

Best for: Money you won't need for 5+ years

You need BOTH! Save for emergencies and short-term goals. Invest for retirement and long-term wealth. The key is knowing which tool to use for which goal.

Understanding Stocks

When you buy a stock, you're buying a small piece of ownership in a company:

How Stocks Work

Example: Tech Company Inc. has 1,000,000 shares of stock.

You buy 100 shares for $50 each = $5,000 investment

You now own 100/1,000,000 = 0.01% of the entire company!

You make money two ways:

  • Price appreciation: Stock price goes from $50 to $75 (you gain $2,500)
  • Dividends: Company shares profits with shareholders (quarterly payments)

But remember: stock prices can also go DOWN. You could lose money if you sell when prices are low.

📖 Tucker's Tale: The Power of Patience

In 1997, if you had invested $1,000 in Amazon stock, by 2024 it would be worth over $2,000,000!

But here's what most people don't know: Amazon's stock dropped 95% during the dot-com crash in 2000. If you panicked and sold then, you'd have lost almost everything.

The Lesson: Long-term investing requires patience. The stock market goes up and down, but historically it always trends upward over long periods. Time in the market beats timing the market.

Understanding Bonds

Bonds are like IOUs. When you buy a bond, you're lending money to a government or company:

How Bonds Work

You buy a $1,000 bond at 5% interest for 10 years

  • You give the issuer $1,000 today
  • They pay you $50/year in interest (5% of $1,000)
  • After 10 years, they give you your $1,000 back
  • Total: You earned $500 in interest over 10 years

Bonds are lower risk than stocks but also lower reward. They're like the "steady Eddie" of investing.

Understanding Mutual Funds & Index Funds

These are the BEST option for most beginning investors:

Mutual Funds

What it is: Pool of money from many investors, professionally managed

How it works: Manager buys many different stocks/bonds

Advantage: Instant diversification, professional management

Disadvantage: Fees can be high (1-2% per year)

Index Funds

What it is: Mutual fund that tracks a market index (like S&P 500)

How it works: Automatically buys all stocks in the index

Advantage: Very low fees (0.03-0.2%), matches market returns

Disadvantage: Won't beat the market, just match it

Warren Buffett, one of history's greatest investors, recommends index funds for most people. Why? Low fees, automatic diversification, and historically great returns (average 10% per year over long term).

Risk vs. Reward

The fundamental rule of investing: higher potential reward comes with higher risk.

Investment Risk Ladder

Savings Account 1-2% return Lowest risk, guaranteed by FDIC
Bonds 3-5% return Low risk, steady income
Index Funds 7-10% return Medium risk, best for most people
Individual Stocks -50% to +500% High risk, high potential reward (or loss)

⚠️ Important: Never invest money you can't afford to lose. Never invest emergency fund money. Only invest money you won't need for at least 5 years.

The Power of Starting Young

This is THE most important investing lesson: START EARLY!

The Million Dollar Difference

Two friends, both want to be millionaires by retirement:

Friend A (Starts at Age 25):
  • Invests $200/month for 10 years (ages 25-35)
  • Total invested: $24,000
  • Then stops contributing, just lets it grow
  • At age 65: $600,000 (at 8% return)
Friend B (Starts at Age 35):
  • Invests $200/month for 30 years (ages 35-65)
  • Total invested: $72,000
  • Contributes 3X more than Friend A!
  • At age 65: $300,000 (at 8% return)

The Lesson: Friend A invested $48,000 LESS but ended with TWICE as much! Why? Those extra 10 years of compound growth made all the difference. Starting early is more important than investing more.

How to Start Investing as a Young Person

The Smart Beginner's Path

Step 1: Build Emergency Fund First

Save $1,000-$3,000 in a regular savings account before investing. You need a safety net!

Step 2: Pay Off High-Interest Debt

If you have credit card debt at 18%, pay that off before investing. You can't earn 18% reliably in the market!

Step 3: Start with Index Funds

Don't try to pick individual stocks. Use low-cost index funds that track the S&P 500 or total market.

Step 4: Automate Your Investing

Set up automatic monthly investments. Even $25-$50/month makes a huge difference over time.

Step 5: Think LONG Term

Don't check your investments daily. Don't panic when market drops. Stay the course for decades.

Investment Accounts for Young People:

  • Custodial Account: Parent opens for you (under 18)
  • Roth IRA: Retirement account with tax-free growth (need earned income)
  • Brokerage Account: General investing account (18+)
  • 401(k): Employer retirement plan (when you have job with benefits)

Talk to your parents about opening a custodial account or Roth IRA if you have earned income!

🎯 Key Takeaways

1

Investing ≠ Saving. Save for short-term, invest for long-term. Different tools for different goals.

2

Time is your greatest advantage. Starting at 15 vs. 25 can mean hundreds of thousands of dollars difference at retirement.

3

Index funds beat most active investing. Low fees, automatic diversification, proven track record. Perfect for beginners.

4

Higher reward = Higher risk. Understand what you're investing in. Never invest money you can't afford to lose.

5

Stay the course through ups and downs. Markets crash and recover. Panic selling locks in losses. Patience wins.

📖 Biblical Wisdom on Investing

"Dishonest money dwindles away, but whoever gathers money little by little makes it grow."

— Proverbs 13:11

This verse perfectly describes long-term investing! Gathering money "little by little" through consistent investing is God's endorsed wealth-building method. No get-rich-quick schemes, no gambling – just steady, patient accumulation.

"The plans of the diligent lead to profit as surely as haste leads to poverty."

— Proverbs 21:5

Investing requires DILIGENT PLANNING, not hasty decisions. Research, start small, stay consistent, think long-term.

💭 Think About It

  1. Why do you think so few people invest, even though it's so powerful for building wealth?
  2. If you started investing $100/month today at age 15, how much could you have by retirement at 65? (Hint: Use the compound interest calculator!)
  3. What's scarier: the risk of losing money in the market short-term, or the guarantee of having no wealth in retirement?
  4. Why do you think index funds perform better than most professional stock pickers?
  5. How does understanding investing change your view of your first job and the importance of saving early?

✅ Take Action

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Use the Investment Calculator

Go to marks.money and use the investment calculator. Play with different amounts, timeframes, and returns. See the power of starting early!

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Talk to Your Parents

Ask about opening a custodial investment account or Roth IRA. If you have earned income, you can start investing TODAY even as a minor!

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Learn More

Read "The Simple Path to Wealth" by JL Collins or watch educational YouTube channels about index fund investing. Knowledge is power!

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Set a Goal

Decide: "I will invest $X per month starting [date]." Even if it's just $10-20, START. You can always increase it later. The habit matters most!