What is more profitable (stocks, bonds, CDs, mutual funds) and can you explain some things about them?

I want to know what is the best way to invest my money instead of blowing it all now so I have some in the future. I'm 16 now but will be 17 in a month. My mom has made a deal with me that if I can earn and save 5000 by the time I'm eighteen than she'll give me 10,000 for my eighteenth birthday. I have mutual funds right now that have a value of 5000 but my mom and step dad are going through a divorce and his name is the cosigned name on it so I'm not counting on that money at all and even if I was it wouldn't count. So my question is, is what is the most profitable form of investment for while I'm still 16/17 and for after I'm eighteen. Also if you could explain the process of some of these investments that would be much appreciated. Thanks for the help ahead of time.

First off, I love your mom's promise, definitely a great way to teach you about the importance of saving for your future. But, given that you are only going to be 17, stocks are definitely a great investment. Bonds, CD's and other fixed income money market securities are more for protection and current income than capital growth. Mutual funds can be great, however, very few outperform the market. In fact, nearly 75% of all mutual funds underperform the market, meaning you would have better odds by putting your funds in an index fund that tracks the S&P 500. I am currently 20, so I am in a similar situation. My portfolio, which composes approximately 90% of my liquid assets, currently is allocated with 100% individual stocks. If you do not have the time to study the markets and make these decisions, but want to outperform the domestic markets, you have two choices (both of which are slightly more risky than investing in an index fund). First, you can research industries that appear to have potential, then purchase ETF's that track that index. This takes allows you to reduce your research and your risk, by focusing on an industry as a whole rather than a single company in that industry. The second would be to overweight your portfolio's allocation to stronger growth markets, which are typically overseas markets, after researching to find which markets present the best potential. This can be done through both ETF's and mutual funds. The theory is that since you are so young, you can take on more risk, as you have a longer time horizon to make up any losses you may incur before you will need to depend on income from your investments. Shorter term, you should probably invest your portfolio in some short-term CD's, until you decide where you would like to allocate your portfolio. The markets are currently drifting sideways, which means you will not likely be risking missing huge market moves, unless any positive news is released that materially changes the problems facing our economy. Once you figure out how you want to allocate, you can begin to invest your funds from your CD's, as they mature, into the funds that you choose, whether they are mutual funds or ETF's, through a discount broker, such as Scottrade. If you are interested in learning the markets and how to invest in individual stocks, there are a lot of great resources out there to help you. Just some thoughts, I hope they helped.

Best of luck!

Brendan Prewitt

Read the book "Investing For Dummies." It provides a great foundation on personal investing and is easy to read.

If you're willing to study, do the hard work without fail, then stocks are by far the best investments out there.

when return is high risk is also high. when there is a fixed market determined return it will always be lower with minimal risk.

That way you grade it you can list higher return as (1) stock;and then Mutual Funds; next bonds and then CD.

Stocks:
Give you a tiny ownership of the company whose stock you buys. You buy stocks through an on-line broker such as TDameritrade, E-Trade, or another. When the stock goes up, you make money. When it goes down, you lose money. All stocks have different levels of risk and return. You can buy and sell stocks whenever you want.

Bonds:
No. Don't use bonds for your situation.

CDs:
These are issued through Banks mostly and offer a fixed amount of return after a years time. Usually, you give the bank a certain amount of money and get around 4-5% return after a year. During this year you cannot touch this money or you have to pay large fees.

Mutual Funds:
These are where many people pool their money together and a Money Manager takes all the money and buys several stocks to reduce risk. These are considered less risky than owning your own stocks, and can deliver good profits. Usually, these Funds are suppose to aim to match the S&P 500. (so make 10-15% a year or so)


So... in your situation...

Do nothing with your money right now. Well, no, put it in a savings account. Then start researching stocks. When you have a good grasp, then start putting money into the market.

Email me: switze22@msu.edu

I'd love to help you out

You have just 1 year to go from $0 to $5,000 in one year?

Your only option is to get a job and save $333 per month. The choices for saving and growing it a little bit are:

Savings account - 4% and you can get it out anytime

CD's - 4% and you are locked it for the time you agreed

Mutual funds - 8% on average after holding for 10 years or more...these funds by the stocks and bonds

Individual stocks - 8% but you have to buy yourself and suffer from lack of owning several companies - one fails, you lose it all

Individual bonds - 5% but you have to buy yourself and usually hold until maturity date

So, work and save $333 per month and let it grow in a 4% savings account (see ING Direct).

Good luck!