1) Read & Categorize (15 Min)

25 Things to Know About Investing

Let’s start this lesson on investment basics by seeing what you already know about the topic.

1) Read & Categorize (15 min)

Investing

7.1 Investment Basics

Activity

This Business Insider article describes 25 Things to Know About Investing by Age 25 – (read article attached to the end of this document) You’ll notice we’ve numbered the Things to Know. As you read the article, write the corresponding number in one of the boxes below, based on your current knowledge level of the topic. There is NO expectation that you should already know all of this info!

2) Learn with a Partner (10 min)

A. First, find one item that you’ve put in Category 1 that your partner did not. Explain your understanding of that fact to your partner, to the best of your ability. Now, switch roles. Your partner should find one item in their Category 1 that you didn’t include there and explain it to you. **If you didn’t put anything in Category 1, pick the item in Category 2 you feel you know best.

B. Now, find one item that you know nothing about -- Category 3 -- that your partner understands and have him or her explain it to you. Now, switch roles.

C. Finally, find one investing concept that you BOTH put into category 3 and do some quick online research to find a resource that explains the topic better. Both of you should be looking for resources, and then, based on what you find, write a brief explanation of your new understanding here:

25 Things To Know About Investing By Age 25

LIBBY KANE

SEP. 19, 2014, 2:09 PM

You're never too young to invest.

Yes, investing can seem intimidating, and yes, there are experts out there who seem to speak a whole different language, but not everyone needs to make a career out of it. Most of us are just in it to bulk

up our savings for retirement, make a little extra money on the side, or even just beat

Flickr / Dima Viunnyk

Anyone with a little spare cash can invest.

inflation (more on that in a minute).

Below, find 25 investing basics that every 25-­year-­old should know. Is this everything there is to learn? Of course not. But it's a solid start.

About the concept

1 Your savings account isn't invested in anything ... You do earn interest on money in savings, but it's usually less than 1%, and that money sits in the bank.

2 ... but your retirement savings are. Retirement savings, on the other

hand, are invested if you put them in a retirement fund like an IRA or 401(k). This

isn't the case if you simply name your savings account "retirement."

3 Investments are one of the only ways to keep up with inflation. Inflation lops an average 3.87% off your money's value every year, so you need your money to

grow fast enough to outpace inflation. For most people, investing is the only way to get that kind of growth.

4 Investing is always a risk. Investing could earn you money or lose it. Just because many people invest

Flickr / Kate Hiscock

Go ahead and consider these eggs poorly diversified.

About the jargon

5 A security is a financial instrument. You'll probably hear people refer to "securities," which is a catch-­all term for things like stocks, bonds, or CDs. Securities are divided into debt securities (money owed to us, like from a government bond), and equity securities (actual value we own, like stocks).

6 Stocks are equity in a company. When you buy a stock, you're buying a tiny little piece of an actual company. Not a lot, but ownership nonetheless. Stocks are more

volatile than bonds, and may therefore yield greater rewards or losses.

7 The stock market lets you track stock performance. Stocks are traded on "exchanges," which make up the overall market. The major stock exchanges in the US

include the New York Stock Exchange (NYSE) and the Nasdaq. Stock prices are also tracked on indices such as the S&P 500 and the Dow Jones Industrial Average. While you'll want to check in with your individual investments, monitoring stock market activity can give you an idea of how your portfolio might be performing.

8 Bonds are loans you make. When you purchase a bond, you're essentially loaning a little money to an entity — like the US government, for instance — and that entity

has to pay you back after a fixed period of time, with interest. There aren't bond exchanges that show up in a ticker, because bonds are traded differently than stocks. However, there are sites where you can get an idea of bond pricing, like the Wall Street Journal.

9 Diversification means spreading your money out among different kinds of investments. There are a lot of opinions out there about how diversified an investment portfolio needs to be, but most everyone agrees that putting all of your financial eggs in one basket is a recipe for disaster.

10 The ROI is how much money you make on your investments. To get an idea of how well your investments are performing, you can calculate the ROI by dividing an

investment's gains by its costs.

Spencer Platt / Getty Images

The New York Stock Exchange is a major fixture of Wall Street.

About the process

You'll probably be charged fees. Investing isn't free. If you're working with an

11 investment professional, you'll pay them either a percentage of your portfolio or a flat

fee (you'll want to know if your advisor is "fee-­based" or "fee-­only" before you sign on), online investment platforms or "robo-­advisors" each have their own fee structures, and some mutual funds and ETFs also charge fees. These fees vary, and if you do your research, you can minimize them.

12 You don't have to pick stock by stock. Professionals collect groups of securities called mutual funds, and you can invest in these funds to diversify your money

without picking every individual stock or bond yourself. Index funds are mutual funds chosen to reflect a specific stock index, such as the S&P 500.

13 You may have to pay taxes due to your investments ... The US government doesn't let you have the money you may make investing for free. When you cash in,

you'll owe what's called capital gains taxes.

14 ... but you also may receive a tax break. Although different retirement accounts have different tax structures, contributions are often tax-­deductible. 529 savings

plans, which are also investment accounts, are similarly tax-­advantaged.

15 Sometimes, you'll fail. It's an unfortunate truth that we won't all be rock star investors. For some people to do really well, others must do poorly. And sometimes,

you're the "other."

Flickr / Jamie McCaffrey

Investing isn't just gambling.

About strategy

16 Starting early is a major advantage. In your 20s, your biggest asset is time. Even when you're just investing in retirement savings, nothing can make up for the effect of

compound interest. Also, if you lose money in the market, you'll have more time to make it back before you need it.

17 Hot stocks probably aren't your ticket. There's always a stock to buzz about, but that doesn't guarantee it will be your ticket to wealth. It's a better bet to research the company and make your own decision than to blindly jump on the stock of the moment.

18 Your long-­term strategy has nothing to do with that morning's news. Most investors shouldn't "buy" or "sell" every time it's recommended on TV. There's an

entire documentary explaining why active investing — buying and selling stocks strategically and often — doesn't work for most people.

19 Getting too attached to individual stocks can be dangerous. If you own a particular security you're attached to for sentimental reasons or because of its past

performance, you might be reluctant to ditch it even if your advisor or investment professional says to. Securities are only as good as how they're performing currently, and you have to be willing to let low performers go.

20 You don't need to check constantly. If you've caught sight of a stock ticker (on Business Insider, for example), you're probably aware that markets go up and

down every day, and so do individual stocks. If you're investing for the long term and aren't an investing professional, you don't need the anxiety of a running ticker on your desktop.

21 Don't invest money you'll need soon. If you'll need quick access to liquid cash in the short term, you won't want to park that money in the stock market. Some

professionals say you shouldn't invest money you'll need in the next five years,

because if the market goes down, you won't have enough time to recoup those funds.

Wikimedia Commons

Even the most qualified professionals can be off the mark.

About keeping a cool head

22 No one can reliably predict the market. They just can't. While professionals can make educated guesses, predicting the market is predicting the future, and no one can

do it.

23 And past market behavior isn't a reliable way to predict the future. On that same note, looking at what the markets have done isn't a reliable way to predict what

they will do. Again, this is a case of predicting the future, which could go in an unexpected direction due to unforeseen events known as "black swans."

24 You don't know what you don't know. There's a lot to learn about the stock market, and it's a big mistake to think that you're an expert just because you're a

generally smart, capable person. There's always more to learn.

25 You don't have to do it yourself. You don't have to be an expert to invest. There are financial planners, wealth advisors, and even automated online investing

platforms (robo-­advisors) to guide you.

This post has been updated to clarify that the Dow Jones Industrial Average and S&P 500 are indices, not exchanges.

* Copyright © 2014 Business Insider Inc. All rights reserved.