How to Invest Money

You know much of what you need to know by now: that you can turn a little money into a lot of money over time; that for most people, stocks are the best kinds of long-term investments; that mutual funds invest in stocks (and other things); and that index funds are a particularly appealing kind of mutual fund.

It's finally time to get into some nitty-gritty details about how to invest.

Are You Ready?
This corner of Fooldom is intended to persuade you to invest and to help you actually invest. But you shouldn't do anything until you're ready. If you want to take time to learn more, think more, and then decide, by all means, do so. Take a year or more, if you want to, while you save and learn.

Also, remember -- if you'll need any of your money within five years or sooner, don't put it in stocks. Such short-term money should be in a bank account, CDs, or possibly bonds. The stock market is for long-term money. (Here's our short-term savings center .)

Minor Details
Legally, you're a minor if you're under a certain age. (Depending on where you live, it's usually between 18 and 21.) That means you aren't allowed to enter into a binding contract, so you'll need the help of a parent, guardian, or other adult to open accounts at financial institutions. An account that's opened by a minor and an adult is often called a custodial account.

There are alternatives to getting your own account, though. You might informally buy into various stocks or mutual funds through your parents. For example, if your mom is buying 50 shares of stock in PepsiCo for herself, you might hand her $100 and ask, "Can you please buy two shares for me?" For this system to work, though, you need to trust your parents not to run off to Bermuda with your money. You also have to be buying the same investments, and you'll need to keep clear records of who owns what.

Mutual Fund Accounts
If you want to invest money in a mutual fund (such as a glorious index fund), you need to determine a few things first:

• Which mutual fund(s) are you interested in? Read, explore, think, ask questions, investigate. Definitely consider index funds.
• What are their minimum initial investments? (Some mutual funds let you start with $50, while others may require $5,000. Most likely, you'll see minimum initial investment amounts of around $1,000 to $3,000.)
• How much will you invest in a given fund, if you can meet its minimum? If you can't meet its minimum, will you wait and accumulate more money, or is there a similar other fund with a lower minimum that you can invest in?
• Do you want to invest in the fund through the fund's company or through a brokerage? Most major brokerages these days permit you not only to buy and sell stocks in your account, but also to buy into a range of mutual funds. Some brokerages only offer access to a few mutual funds, others offer thousands of funds.

You can buy shares of a mutual fund directly from the company that the fund belongs to. (Sometimes a fund is only sold through its company and isn't available through brokerages.) You just need to contact the company, say what fund(s) you're interested in, mention that you're a minor with a cooperative adult, and ask for the necessary paperwork. Then you fill out the form you're sent and mail it back, with the money needed to buy into the fund.

Buying into a fund through a brokerage offers some advantages, though. You can easily sell at any time and buy into another fund, even one from a different fund family. Or you can move money between stocks and funds. (Frequent shuffling isn't recommended.) If you plan to leave your money in one place for a long time, buying through the company should work just fine.

Want to learn more? Read the rest of this article about Teens and their money: Smart Investing.