Investing & Stocks | Cash Course | PragerU Kids

Before we start this episode, here's a quick preview of what's coming. Ready to take charge of your finances and master the art of money management? Cash Course is your ultimate guide to financial literacy from personal budgeting to macroeconomics. Check out more episodes at prageru.com. Have you seen the price of Apple? It's gone through the roof. Tesla. Don't get me started on Tesla. Should have bought that when it was cheaper. Major mistake. What are you talking about? Talking about stocks. What is a stock? Seriously, you know what stocks are? No, I don't. Watch this episode of Stocks are a kind of investment that represents portions or shares of a company. Shares are sold as a way to raise capital, which is money that enables the company to grow and, you know, make more money. When people buy shares, they are investing in the company in hopes of growing their money too. As the company becomes more profitable, buying stock in a company makes you a part owner, also known as a shareholder of the company. The more shares you buy, the more of the company you own. And as a part owner of the company, you may even have the right to vote on certain company matters. The more shares you have, the more votes you have. Investors with a lot of ownership take voting very seriously since it can impact their investment. But how does someone make money investing in stocks? Just keep listening, they'll tell you. Keep watching. Well, if the company grows and does financially well, the value of your shares increases. On the other hand, that the company doesn't do so hot, your shares will decrease in value. Let's say, for example, company X's stock is $10 per share and you purchase 10 shares. Let's then say the company does well and the stock price raises to $15 per share and you decide to sell your shares. Congrats, you've made $50. That's what I'm talking about. What are you talking about? On the other hand, if the price drops to $5 per share and you decide to sell, you've lost $50. And if the company goes bankrupt, well, you may lose all of your principal investment. Are you serious? It sounds like they're pretty serious. It can definitely be stressful. The price of a stock fluctuates almost daily and can be dependent on lots of factors beyond a company's control like a competitor releasing a new product, negative national news or the performance of the overall economy. Prices are also driven by supply and demand. When there are more interested buyers and fewer shares available, the price of that stock typically increases and vice versa. Long-term though, the value of a company's shares tends to be based on its actual success. But are all socks the same? That's what I want to know. Socks, it's stocks. Are you even listening? Well, some stocks are considered higher risk than others. For example, investing in smaller companies and startups could bring very high returns since there's potentially lots of room for growth leading to appreciation of its stock price. These stocks tend to be higher risk because it could take a while to appreciate or it could even depreciate if the company struggles to grow. On the other hand, investors can buy shares of more wellestablished companies, often called value stocks. Investing in these companies is usually less risky, but there's also often less room for growth. In the place of price appreciation, these companies sometimes pay shareholders in dividends. Dividends are a portion of a company's net profits periodically paid to shareholders based on how many shares they hold. And these can be paid out in various forms like cash, discounts, or even more shares. To balance the risk, investors often diversify their investment portfolio. This means they purchase stocks across different markets and purchase different types of investments. In other words, they don't put all of their eggs in one basket. What are you doing? I'm calling Apple to buy some stocks. You can't just call Apple and buy the stocks. He's right. People have to buy and sell stocks at a stock exchange. There are exchanges all over the world, but two of the largest public stock exchanges are located in the United States. The New York Stock Exchange, NYSE, and the NASDAQ. And most investors typically use an intermediary like a professional stock broker or many of the do-it-yourself online platforms available today. Now that you know a bit about how stocks work, consider the following. One, research before investing. Don't just take advice from your uncle's friend's dog walker or follow the latest trend and hype. Take advantage of the many educational resources available online that are often for free. Two, determine your risk tolerance. Do you want to invest long-term or short-term? Are you looking for higher risk and price appreciation or lower risk and dividend returns? These considerations will influence what type of stock purchases you make. Three, stay calm. Investing in stocks can lead to huge swings of emotions from great highs to low lows. And we all know that acting on pure emotion can result in some bad financial choices. So don't panic. Remember step one and keep researching. The more you understand the way the stock market moves, the less likely you are to make irrational decisions. Buying and selling stocks is an important part of a strong and growing economy. Companies get the capital they need to grow and investors get to make a profit on the growth of that company, especially for the future of your money. Remember, stocks are not the right investment for everyone. So, make sure to study your different options before investing. I don't care how long it takes. I don't care how many you have to buy. I want every stock in the book. All right. I want the [Music] Watch more at pragerukids.com. And parents, don't forget to subscribe.