I can remember buying my first shares. They were actually not common stock but rather shares of an exchange-traded fund (ETF). I was in the fifth grade and had used the small amount of money I had saved in my piggy bank to buy one of these shares.
I remember the excitement—as a fifth grader, most kids aren’t titans of finance. But starting early has its benefits. An extra few years of time value and compounding can make a big difference over an extended time. The best part about ETFs is that anybody can own them, and they often trade without commission.
An ETF is like a mutual fund in that it pools funds from investors to buy stocks and bonds. Yet, it trades on a stock exchange much like a stock. When you buy a single stock, you risk your investment in the performance of the company you bought. An ETF has the benefit of divarication—since you likely don’t have a lot to spend, you get the benefit of reducing this risk without needed to buy several stocks. A prime example is the SPDR S&P 500 Trust ETF (ticker symbol: SPY). This ETF holds all of the stocks in the S&P 500 index in their same proportion as in that index and was the first ETF to be listed on an exchange. Instead of buying some of the 500 stocks in that index (some of them cost several hundred dollars per share!), you can just buy the ETF for a lesser price.
For students with as little as $100, it is fairly easy to open a brokerage account to buy ETFs. ETFs are an excellent long-term, passive investment which do not require constant trading, and as a student you are likely to have long-term goals. Another benefit is that you may not need to pay commissions for certain ETFs, saving you money on your returns.
If you are interested in starting your own investment portfolio, I encourage you to conduct your own research. Watch financial news and read the business section of a newspaper—the best way to understand what you are doing is pursue it actively; of course, the FBLA course is an excellent way to start learning. I wish you the best of luck as you start your own portfolio and look forward to interacting with you about investing!
2017-18 FBLA National Treasurer’s Council Home-State Director