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Investing 101

Are you ready to take some risks when it comes to your money? If so, a leap into the stock market may be for you.

Mutual funds
Many first-time investors begin by buying shares in a mutual fund. A mutual fund pools the resources of many investors to buy stocks in multiple companies. Mutual funds are professionally managed and are called “diversified investments” because they own shares of lots of companies.

There are several different kinds of mutual funds with varying levels of risk, so it’s important to do your homework before investing your money.

Individual stock

As an investor, you also can purchase shares in individual companies like your favorite restaurant or store. You’ll have equity in the company and be considered part owner — with all of the other company shareholders — of the organization.

Because you’re under 18, you can’t purchase or own stocks yourself. Adults can buy the shares in their name, if they have a brokerage account, or through a custodial account set up under the Uniform Transfers to Minor Act (UTMA). Under the UTMA, the investment is held in an adult’s name in custody for you until you turn 21.

It can be expensive to buy just a few shares in a company, but there are some companies that will sell you their stock directly, without a broker, thereby eliminating a brokerage fee. There are also Dividend Reinvestment Plans (DRIPs) that permit current stockholders to purchase additional stock from the company without a broker.

One Share of Stock, Inc. (www.oneshare.com) sells single shares of stock in certificate form that can be framed.

Savings bonds

U.S. Series EE Savings Bonds remain one of the safest investments, and there is never a fee for buying or redeeming them. The bonds, which come in denominations as low as $25, are priced at a discount from their maturity value. Savings bonds can be purchased at local banks or online at the U.S. Savings Bonds Web site at www.savingsbond.gov.

Do the research

Before investing in a mutual fund or company, do research to find out the company’s health. Read the prospectus and other literature you receive from the company. The more informed you are, the better decision you can make.

Reviewed and edited by C. William Thomas, J.E. Bush Professor of Accounting in the Hankamer School of Business at Baylor University.