Should You Buy Stocks?

Buying stocks can be risky. But over time, they may be your best bet.

Jay Liebowitz was 12 years old when he started investing in the stock market. His first investments lost money. But by the time he was 18, Jay had earned $125,000. Now he has written a book, called Wall Street Wizard, about investing for kids.

Like Jay, you may already know that owning stock--a tiny share of a company--can be a great way to make money. If you buy stock in a company that makes a lot of money, the price of that stock is likely to go up. That means you will be able to sell it for more money than you paid for it.

That's not all. Many stocks pay dividends. For each share of a stock you own, the company will send you some of the profits that it made in the previous year.

Advantage of Time

Most young people don't have much money to invest. But kids have one advantage over older investors--time. "Since kids have longer horizons, investing makes a lot of sense," says Jay. If you start investing a little bit now, your stocks are likely to grow in value as the years go by.

For example: You could have bought a share of Wrigley stock in 1996 for about $45. Recently, it was selling for $90 a share.

One Way to Get Started

One easy way to start investing is through DRIPS (Dividend Reinvestment Plans). Here's how they work: You or your parents buy one or more shares of a company's stock, in your name. This can be done through a discount broker or sometimes through the company directly. Then, you fill out paperwork to turn it into a DRIP. (Your teacher has details.)

Once you own a DRIP, you can buy more of that same stock--sometimes for as little as $25 at a time--usually without having to pay a big fee. (Normally, you might have to pay a hefty broker's fee each time you purchase more stock.) The money you invest buys a percentage of stock. Your stock dividends can be used to buy even more stock.

Which Stock to Buy?

How do you choose which stock to buy? One way is to figure out what products you use in your daily life. Do you drink Pepsi or love Disney movies? It makes sense to buy shares of big companies that have been around a long time and sell products that will be used in years to come. [*]

Once you have some ideas, there are Web sites and books that can help you learn if the company is healthy.

Owning stock can be risky-the value of your stock could go down, and you could lose money. But over time, money invested in the stock market tends to go up in value--far more than money that is put in most other investments.

"No question," says Jay Liebowitz, "stocks have been the best-performing investment in the past 70 years."

(*.) Note: Scholastic does not endorse or recommend any particular stock.