Investment Strategy For Beginners

You have managed to accumulate some money to invest.  Now where are you going to put it?  This is important.  You don't want to just drop your hard earned money anywhere.


It's true.  There are different investment types for different situations.  For the purpose of this article we are going to look at 3 very broad investment types.  Those being Safe Investments, Medium Risk Innvestments and High Risk Investments, all serve a purpose and have a place in your personal investment portfolio.


Before we get into safe investments it's important to note that there is no such thing as a 100% safe investment.  Investments of any kind carry some degree of risk so when we are talking about a safe investment we are simply meaning an investment with a low level of risk.

So that being said, what is a safe investment?  Simply an investment with a low level of financial risk.  That means you are not likely to lose you investment principle.

Safe investments would include interest bearing money market mutual funds, Government backed savings bonds or any investment that is locked in for a specific length of time at a specific, guarenteed rate of return, such as a GIC. 


A medium risk investment will obviously carry more risk to your investment capital than the safe or low risk investments.

The medium risk type of investment would include mutual funds that have a fluctuating share price.  The value of this type of investment would move based on external factors such as political unrest, natural disasters, the economy in general.

Your capital however, is relatively safe since it is held as part of a multi-million dollar mutual fund.  You can however lose money.  As the share price drops so does the value of your investment.  On the other hand, as the share price raises so does the value of your investment.

Mutual funds tend to move slower than stocks so you should have time to exit out of an investment if you decide you are going to lose money.  Vigilance is the key.


There are many different types of high risk investments out there but for the purpose of this aricle we will stick to stocks.

When you invest in the stock market you are investing in individual companies.  You purchase shares of a company.  The value of that share will fluctuate depending on the success or failure of that company.  You have no control over the running of that company (except for the number of votes your shares entitle you to!). 

The value of the shares you own in a company CAN drop to $0.00 - and fast!  You can also realize gains of several 100% if you choose wisely (and all the stars are lined up correctly, you sleep with a horseshoe under your pillow and eat 4-leaf clover salad regularily!).  Needless to say, the risk involved in investing in the stock market directly is high.


As I mentioned at the beginning of the article there is a place for all the investment types in your portfolio. 

Start by thinking of your portfolio as being in the shape of a pyramid made up of 10 bocks.  So you would have 4 blocks on the bottom row, then 3 blocks, 2 blocks and finally 1 block on the top row.  Now give each block an equal value - say $100 - making your pyramid worth a total of $1000.

In order to achieve maximum returns with minimum risk you need exposure to all three investment types.  The pyramid you create will help you manage your risk.

     Bottom Layer

Your  bottom layer of the pyramid needs to be the strongest layer.  It's the foundation everythings else is built on so make it strong.  Fill the bottom 4 blocks with safe - low risk investments.

     Layer 2 & 3

The next layer sits directly upon the foundation layer.  It consists of 3 blocks.  The layer above it consists of 2 blocks.  You can fill these 2 layers (or 5 blocks) with medium risk investments (mutual funds).  Remember to do your research and choose funds that are increasing in value based on the external factors at play.

     Top Layer

The top layer of your pyramid consists of a single block.  This block can contain your high risk (stocks) investment.  It should also contain an amount of money you are prepared to lose should the stock your invested in drop to nothing.

By following a pyramid structure for your investment portfolio you are limiting your risk while maximizing your profits.  You have a strong base (40%) of your investments in something that is growing slowly but is relatively safe.  The middle of your pyramid (50%) is invested in medium risk mutuals which is providing slightly more aggressive growth with the possibility of some ups and downs but over the long term should provide decent returns.  Finally, the top layer (10%) is dabbling in the stock market, looking for some big returns but at a much greater risk.

This is just one possible example of a pyramid.  If you are a more conservative investor you could have the base and next layer (70%) invested in low risk investments, (30%) in medium risk investments and nothing in the high risk stocks.  The mix is up to you but I suggest you have at least the base layer in low risk investments and never more than the top 2 layer (3 blocks) in the stocks.  This will help keep your investment pyramid growing and relatively safe.

Invest in one pyramid at a time.  It may help to draw it out on paper and fill in the blocks as you go.  Each block will be worth $100 making each completed pyramid worth $1000.  When you have one pyramid finished start another. 

When you start to see returns on your investments you should realocate your money.  Change the value of each block to ... say ... $150.  Start over at the base and increase each block to $150.  Do this about once a year or more often if your high risk investment is really putting out for you.  Remember to fill the bottom layers first and keep your high risk investments to between 0 - 30% of your pyramids value.

Investing can be fun but remember you have some goals.  You want to make money!  Don't allow yourself to be invested to heavily in any one area.  Invest in different mutual funds and stocks or interest bearing investments and keep a close eye on how your investments are preforming - you may need to make some changes.

I said it before but it bears repeating : Vigilance is the key!

Frivolous Spending

Part of becoming financially independent is keeping more of your money in your own pocket.  It's actually easier than it seems. 

Now I realize that everyone has 'wants' (things that aren't necessary for survival).  But don't let those wants disrupt your financial plan.

As a teen facing the pressures of school and friends you probably have a list of items you want.  Like a new cell phone, the latest CD or movie and don't forget the brand name clothes, just to name a few things.  That's great.  Just because you want to become financially free (another way of saying 'wealthy'), doesn't mean you have to give up those frivolous items.  You do need to be smart about it though.

Plan Ahead

You know you are going to want the extra things so plan ahead for them.  You should already be saving a portion of your money for investing purposes - don't dip into that money!  Find the extra money from the money left over after you save your designated portiion.  Here is an example:

Lets say you make $200 per month at a part time job.  You have decided you will save 50% for investing in the future - so you put $100 into your savings account.  That leaves you with a $100.  Of that, you figure about 50%  ($50) will go to pay general expenses (time spent with friends, snacks, movies, etc.)  That leaves you with 50% ($50) for frivolous items.

Now your extra $50 is probably not going to buy you that item your looking at so you are going to have to save up for it.  Take your extra $50 and put it into another savings account.  Call this account your 'Frivolous' account.  Do this every month.  Put the money you have left over after you pay the general expenses into your frivolous savings account. 

Over time you will accumulate a sizeable amount of money that is designated for frivolous spending.  That way you won't be tempted to dip into your investment account and you won't feel like you are sacrificing anything by taking out of you general expenses money.

Shop Smart

By putting off your purchases until you have the cash in your account you are helping yourself in two ways.

First - You have the money.  You don't have to worry about borrowing it from someone else or skimming from your investment account and you still have your regular amount for general expenses.

Second - The cost of the item you want to purchase may actually be less than it was when it first came on the market.  Often when new products first hit the market they are priced high.  A couple months later, after the initial rush is over, the price will start to drop or the item may start coming on sale.

Another good reason to wait is that it will curb impulse buying.  When you have time to sit back and think about it you may decide that you don't really need that item.  Or you may decide that there is a similar item at a cheaper price that will do just as well.

Being financially independent doesn't mean you have to give up the things you really want.  It means you have to develope a different attitude when it comes to making purchases. 

A Whole New Attitude

Gone are the days of impulse buying.  Now you save money to make your larger purchases.  You wait until the initial rush is over before buying new products.  You shop around for the best price and look for sales.  You give yourself time to decide if you really want that item or if your are just following the fad.  Sounds like a smart shopper to me.

Some people may argue that if you are buying frivolous items then you are taking away money that could be used for investing.  They are right!  The more money you can put away to invest now - the faster your wealth will grow.  However, when you deny yourself the frivolous things, then saving money becomes more like a punishment and you are less likely to stick to it.

It is more important that you learn to control your frivolous spending by stopping the impulse shopping.  Give youself time to think about why you want that item.  Then wait until the price drops and if you still want the item then make your purchase.

Growing your wealth should not be a punishment.  At first it may seem like you are giving up all the extras and you may think you are suffering but give your plan a chance.  Once you get into the habit of saving for investing and saving for frivolous stuff your bank accounts will start to grow.  That is a good feeling.

As your savings start to increase you will notice the amount of interest you earn every month will start to increase as well.  That's a really good feeling. 

Stick to your plan and try to throw a bit extra into your investment savings account once in a while.  It won't take long for your wealth to start growing.

The Magic of Compound Interest

Compound interest is the magic ingredient in any financial plan.  But what exactly is compound interest?

Compound interest is interest paid on an investment; that interest is then added to your original investment (reinvested) and earns interest thereby earning you interest on your interest. This is very powerful stuff especially if you get paid interest every month.
Here is an example:

You make a lump sum investment of $5000 and receive 10% interest compounded monthly (every month your interest is added to your initial $5000 thereby becoming available to earn interest) this is what your investment will look like in:

10 years = $13,535
20 years = $36,640
45 years = $441,770

Now the key to the whole thing is to keep adding your interest earned back into your savings account so that it can also earn interest.  Most investment and savings accounts will do this automatically but be sure to ask and make sure.

In todays markets you'll be hard pressed to find a savings account (mutual, bond or otherwise) that will pay 10% interest.  Don't let this be an excuse for not saving.  Shop around and find an account with a high interest rate that is compounded regularily.  FYI - those fractions of a percentage point make a difference!

Remember to research, research and research some more.  Go online to your bank site then armed with a general understanding of your options head into the bank and talk to an account manager.

You're going to find that most of the high interest accounts won't be available to you because of your age (assuming you are a minor).  Keep researching.  Find the account you want to place your money into.  Make sure you have a VERY good understanding of how that account works and the risks involved then go see your parents.

Prove to your parents that this is the best place for your money.  Show them that you know what you're talking about.  Show them your savings stragety. 

Maybe ... just maybe ... they will consider opening that account for you 'in trust'.  That simply means that the account is in both your name and the name of your parent(s).  They have the control over the account which will be turned over to you when you reach the age of majority. Of course, there is a bit more to it than that but if you think it may be an option then you know what to do ... research!

A quick recap:
  • Compound interest is the key to any successful financial plan
  • A fraction of a percentage point makes a difference
  • The more often your money is compounded the better
  • Use your parents to open a 'trust' account if it is best for you
Just as a reminder of the last post - what you do with your money is YOUR decision.  Be 100% sure before you act because there is no one to blame but yourself.

Here is a link to an online compound interest calculator.  Use it to try different scenieros.  Search 'compound interest calculator' online and explore some other calculators and learn more about how compound interest is calculated. Your bank site may even have a compound interest calculator there.

Research The Banks

Informed decisions can only be made through research.  Research is the key to everything and when it comes to your money you can't be lazy about it.

If you've been following along with this blog then you have already put into action some of the strageties for saving money and you are starting to accumulate some coins in your piggy bank.  Now is the time to start thinking about what you are going to do with those coins when you finally open your piggy bank.

You need a savings account at one of the local banks.  I know what you're going to say - 'I already have one' - but is it the best one for you?  Don't answer that!  Do your research first then give an informed answer.

All the banks have the same general purpose - that is to house money.  Their business is money. They lend it to people who need it and store it in a safe environment for everyone else.  BUT - all banks are not created equal.  Remember that!

So how do you go about researching banks?  Start in your home town (since that is where it will be easiest to do your banking).  Go into the bank and ask for information on their savings accounts that would be available for you.  Get pamplets and flyers, etc.  Do this for every bank in town.

Go home and review all the information. Go to their websites and research some more about the account options. Pay particular attention to the differences.  Make a check list of everythng one bank offers then compare it to the other banks. For example your list may look something like this:

Description of Service           Bank #1          Bank #2          Bank #3         Bank #4
  • interest rate
  • insurance
  • fees
  • accessability
  • locked in
  • etc.
  • etc.
  • etc.
When you have a comprehensive, detailed comparision sheet made then you can make an informed decision about which bank and account type is best for you.

It is very important that YOU make the decision - no one else.  This is your money that you want to save. You are the one that stands to benefit (or loose!) from your decision.  So research, research and then research some more, until you are comfortable with the decision you made.

From this point on you, and only you, are responsible for the decisions you make.  If you make a good decision you will take all the credit and reap the benefits.  If you make a bad decision ... well ... you only have yourself to blame.

NOW answer the questions - 'Do you have the best savings account you can get?' and, 'Are you comfortable putting your piggy bank money into that account?'.  If you answered 'YES' to both those questions then open the account and start saving.

The Company You Keep

Are you familiar with the phrase, 'you are what you eat'? I'm sure everyone has heard that said at least once. Probably by your parents when you're diving into the potato chip bag. The general meaning of the phrase is, if you eat healthy foods you will be healthy but if you insist on constantly eating 'junk' food then you will not be as healthy.

The same idea applies to the company you keep. Really. If you are constantly in the company of people with little or no ambition to improve themselves then you will struggle to find the motivation to improve yourself. On the other hand (this is the one you should be paying attention to!) if you surround yourself with successful people and people who are constantly working to improve themselves then you will be more inclined to better yourself. What do you think of that theory?

You learn from other people in both a conscious and unconscious manner. Sort of like osmosis. Information will begin to be absorbed by your subconscious. The brain then filters that information through into your everyday activities. So wouldn't you like to be surrounded by positive, productive information rather than the negative 'I can't do it!' type?

As a teenager you don't have a whole lot of control over who you associate with. You go to school and are in a classroom situation where you are in close contact with teachers, aides, parents and other students. But you can still take some control.

It doesn't take long to figure out which kids in the class are the slackers and which are the workers. The workers are the kids you want in your social group. They take their education seriously and they are the kids that will go on to make something of themselves in the future. These are the kids with the million dollar attitude even if they don't realize it yet.

Don't just limit yourself to school. Find successful, ambitious adults and work your way into their circles. For example, if you are looking for a summer job look for employment with a successful entrepreneur and try to place yourself close to your boss. Ask questions and learn. Remember, your boss didn't become a boss by sitting in the back of the classroom, learn from his/her example.

There is so much information surrounding us and most of it is free for the taking. Surround yourself with knowledgeable, ambitious people and start gleaning some of that information. Learn from the examples of others.

The company you keep could make all the difference.

The Million Dollar Attitude

If you're following this blog then I'm going to assume that you are looking for information that will help you to become financially wealthy. Certainly a worth while endeavor. After all, the world runs on money, the more of it you have the more you can do.

Achieving your financial independence (becoming rich!) requires more than lucrative investment windfalls, inheritances or lotteries. It requires the right attitude. I'm not kidding. If you talk to any self-made millionaire they will tell you it was as much attitude as hard work that made them rich.

I'm not talking about the nose-in-the-air, snub the peasant kind of attitude either. I'm talking about the kind of attitude that will make you rich! The million dollar attitude.

You need to believe in yourself. Believe in your ability to become rich. Believe that everything you do is taking you one step closer to your ultimate goal of becoming a millionaire. Once you believe the rest will start to fall into place.

Tell yourself, everyday, that you are going to be a millionaire. Then as the day progresses keep telling yourself that. Think like a millionaire and you will become a millionaire.

As soon as you believe in yourself you will automatically start taking steps to achieve your goal. When you believe that you can become rich then you will find it easier to save money. It will be easier to say 'NO' to the frivolous spending. You will become more money conscious. You will start taking steps to educate yourself on finances.

Attitude is the biggest obstacle in your path to becoming financially independent. Over come the 'I can't do it' attitude and adopt the 'I can do it' attitude then nothing will stop you.

Paper Mache Piggy Bank

In the last post I told you about some of the ways you can scrape up some extra money to get you started saving. I also mentioned that the coins and extra cash you manage to gather should be collected in a piggy bank (one that has to be broken to open!)

I want to take a minute now and explain why I feel a paper mache piggy bank is the best option.

COST. This is probably the first reason I would choose a paper mache piggy bank. It's cheap to make. If your goal is to save money (and it should be!) then to spend money to buy a piggy bank that will be broke in the end seems counterproductive.

EASE & FLEXIBILITY. It's easy and you can make your piggy bank into whatever shape you choose, that's flexibility.

CHANGEABILITY. Is that even a word? My thinking here is that if you change the color or style of your bedroom (where I presume you will be keeping your piggy bank) you can change the color of your piggy bank to match.

So there your have it - the 'why's' of building a paper mache piggy bank.

Now for the 'how's'.

Give some thought to the finished shape of your piggy bank. Do you want a traditional pig? A star? Ball? Face? Remember you will have to break your piggy bank open to get at the money so simple is usually better - unless you have lots of time on your hands.

A balloon makes an excellent body. Blow it up to the size you want. Now using other materials (such as cardboard, paper cups, etc.) construct the features (legs, head, etc.) and tape them to your balloon. At this point it's not going to look like much, just get the general framework done.

Mix equal amounts of warm water and white flour together with a whisk until you have a very smooth batter (similar to a pancake batter.) Add more water or flour as necessary. **It is important to have a very smooth batter. Set aside.

Cut strips of old newspaper about 1 inch wide by 7 inches long. The actual size really doesn't matter as long as you can work with it easily without it wrinkling or folding over on itself.

This is the messy part so make sure you have enough room. Take one strip of paper and slide to through your flour mixture. Pull the paper through two fingers to remove some of the batter. Now place the wet paper on your frame. Keep adding wet papers until you have covered your frame evenly no more than two layers deep. Mold the papers so that your piggy bank begins to take on the shape you planned.

Now let your creation dry for at least a day. It's important that it dries thoroughly between applications of paper so that it won't rot.

Every day or so, (depending upon how long it takes to dry) apply another layer or two or paper. The more layers you add, the stronger your bank will be. You may need to add extra layers at stress points (where the legs attach to the body, etc.) so your piggy bank won't break when it gets heavy with coins.

When you feel you have enough layers then you need to add a white paper layer for the final layer. I use white paper because it covers the ink from the newspapers and it is less likely you'll have newspaper showing through your paint covering. The white layer needs to be as smooth as possible to make the finishing steps easier.

As soon as the white layer is dry you can start decorating your piggy bank. Use whatever you want. Colored crepe paper, glitter, jewels, paint - the sky is the limit. Be creative.

When your decorating is complete all that is left to do is put a hole in the top big enough to drop your coins through. Do this with a sharp knife. Don't put any other holes in the bank (don't put a hole in to get the money out!)

Congratulations! You just made the most important tool in your financial management toolbox. The Piggy Bank.

Where To Find Money

Before we can even start to invest money we need to come up with some to invest. This is not as hard as it seems. Here are some easy ways to start gathering money to invest.

Keeping in mind that this blog is for teenagers the ideas presented are intended for teenagers although adults may learn something new too.

The first thing to do is get yourself a piggy bank. You can make it out of paper mache (I'll explain how to do this in my next blog) or purchase a new one it doesn't matter the important thing is that you have one. Make sure your new piggy bank is the type that you have to break to open - this will prevent you from 'borrowing' from your savings.

Save your change. Whenever you make a purchase at a store pay with paper money. Take the coins you receive back and put them in your piggy bank. Do this for everything you buy and do it every time you make a purchase, you will soon have money to invest.

Save 50% of any money you make. While you're living at home you have few expenses if any at all. Most of the money you earn through a part time job, allowance or gifts you probably spend on frivolous stuff (things you don't really need.) So before you head to the store, pull half that money out and put in into your piggy bank.

Sacrifice. Relax this should be almost painless. Do you have a habit that is costing you money? Do you buy a pop and chocolate bar or chips regularly? Maybe have lunch at the cafeteria everyday? Smoke? Take the amount of money that your habit costs you in one day and put it in your piggy bank then skip your habit for that day. This is good in two ways, you are weaning yourself from a potentially expensive habit and you are saving money.

Do you need it? Ask yourself this before you buy and you could save yourself a bundle. Cell phones are a huge money grab. Ask yourself if you really need one? Do you need all the bells and whistles? If you answered yes that's fine. Now ask yourself if you are on the most economical calling plan? There are lots of different plans out there and sometimes deciding on the right one takes time. First decide how you are going to use the phone - emergencies only, test and talk to friends, keep in touch with parents, etc. Next, figure out roughly how many minutes you will use the phone. Then review the different plans and find the most economical.

Cell phones are just one example. You could the same question about a vehicle or fashion. If you don't spend the money then it's available to save.

Parents. You're living at home right? If there is something you want (like a cell phone) and you can justify the need for one, then come up with a convincing argument and present your case to your parents. They may just buy it for you. It's worth a shot.

These are just a few ways you can scrape up some extra money without really doing anything at all. You simply have to combine a positive attitude with the desire to save some money and you'll be well on your way.

Young People and Money

For parents I don't think there is anything more frustrating than trying to explain the value of money to children (of any age!)

For children especially teenagers, that do have some concept of the importance of money and saving for the future the frustration comes from the limited ways available to make that money grow.

Most kids put some money away into a savings account only to see a measly fraction of a percentage point earned in interest (if that!) Chances are after a couple years of little or no return your child will say, 'why bother?' and spend that money. Can't say as I blame them.

The key to avoiding this is education and alternatives to the low interest savings accounts. Which brings us to the purpose of this blog - to provide some alternatives and creative money management tips for teenagers.

So bookmark this site and check back regularly. The first step to a successful (and hopefully profitable) money management plan is education.

Remember different people have different ideas and different ways of making things happen. Some work better than others but you can learn something from all of them.