Investing, explained
How money grows on its own over time, why starting at 16 beats starting at 36, and the simple tools most people use.
Investing means putting money into something you expect to grow, like stocks, bonds or a fund, instead of just keeping it as cash.
The big idea is compound interest: your money earns returns, and then those returns earn returns too. Growth builds on growth, so time matters more than almost anything else. The rule of 72 gives a quick estimate: divide 72 by the yearly return to see how many years it takes to double. At 8% a year, money doubles about every 9 years. Someone who starts at 16 gets several extra doublings that someone starting at 36 never gets.
Investing has risk. Prices can drop, sometimes a lot, and you could lose money in the short run. The main way people lower that risk is diversification: owning many different investments so one bad company can't sink you.
The easiest way to diversify is a fund. An index fund or ETF buys every stock in an index, like the S&P 500, so one purchase spreads your money across hundreds of companies, usually for a very low fee.
There are special accounts for retirement:
- A 401(k) comes through a job. Money goes in from your paycheck, and many employers add a match, which is free money.
- A Roth IRA is one you open yourself. You put in money you've already paid tax on, and it can grow tax-free. Teens with earned income from a job can have one.
Rules of thumb: build an emergency fund first, invest money you won't need for years, keep fees low, and be wary of anyone promising quick or guaranteed returns.
For teachers: covers NC EPF EPF.FP.1.1 Investing strategies and building wealth; EPF.MCM.2.2 How interest and fees affect spending, debt and savings.
In the news
Real stories from recent issues, each with class slides and a worksheet.
New issues about investing show up here as they come out.
Lesson worksheets
- Compound interest and the rule of 7220 minutes. Watch interest earn interest, and estimate how fast money doubles.
- Stocks, bonds and diversification20 minutes. What you actually own when you invest, and why spreading your money out matters.
Words to know
- Compound interest
- Interest you earn on your interest. Over time, it makes savings grow faster and faster.
- Diversification
- Spreading your money across many different investments so one bad one can't sink you.
- Index fund
- A fund that buys every stock in an index, like the S&P 500, so you own a small piece of all of those companies. Fees are usually low.
- ETF
- Exchange-traded fund: a fund that holds many investments and trades on the stock market like a single stock.
- Mutual fund
- A fund that pools money from many investors to buy stocks, bonds or both.
- 401(k)
- A retirement savings plan you get through a job. Money usually goes in before taxes, and some employers add extra money, called a match.
- Roth IRA
- A retirement account you fund with money you've already paid taxes on. It can grow and come out tax-free in retirement if you follow the rules. You need income from work to put money in.
- Capital gain
- The profit when you sell something, like a stock, for more than you paid. It's usually taxed.
- Dividend
- A share of a company's profits paid out to the people who own its stock.
- Bond
- A loan you make to a government or company. It pays you interest and returns your money on a set date.
- Interest
- The price of borrowing money. Borrowers pay it, and savers earn it.
- Interest rate
- Interest shown as a percent of the amount borrowed or saved, usually per year.
- Stock
- A small slice of ownership in a company. One unit is called a share.
Try it
More topics
Inflation · Interest rates and the Fed · The stock market · Budgeting · Paychecks and taxes · Credit cards and credit scores · Loans and debt · Banking and saving · Insurance · Scams and identity theft · The economy: jobs, GDP and recessions · Supply and demand · Tariffs and trade
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