Episode 3 : What is diversification and a stock market index?

Learn what an index fund is and how to diversify when you are investing. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

What is diversification and a stock market index?

So you’ve got some cash. Maybe from an allowance, or that money your grandma gave you for your 7th birthday.

Here you go sweetie. Whoa, thanks grandma!

What ever it is, what are you going to do with it? Spend it, hide it away… or maybe invest it? Let’s start learning how to make that money grow.

Time to learn how to be a cash kid. 

Hey you guys, it's Cash Kid and you can be one too and this podcast will help.
Today, I'm going to talk about “What is diversification?” What in the world is that?! Hang tight. The cash kid podcast is underway.

So what is diversification? In episode two I said  that stocks can fall under different categories like, gold, silver, oil, electricity, nuclear power, medicine, books, and even groceries and there are even more. 

Now diversification just simply means the act of becoming more diverse. Like the saying, don’t put all your eggs in one basket.

Now in finance. Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. For instance, say if you invest in Apple, a technology company, you might want to “diversify” and invest in oil instead of putting more money in Apple or setting some in other technology companies like Microsoft, Samsung, or Dell. So, you basically want to “diversify” where you are investing because otherwise if you put all your money in one stock and that company crashes….well so does all your money. (NOOOO!)

Now it’s time to talk about an index. I’m not talking about an index in a book. I’m talking about an index in the stock market. An index is a method to track the performance of a group of stocks. Like I said in the last episode some indexes are the Nasdaq, and the New York Stock Exchange which you’ll hear people call the NYSE, and you can’t forget about the S&P 500. 

Now, an index holds a ton of stocks and combines them into one big index. Indexes are usually pretty expensive, most are thousands of dollars. The S&P holds 500 of the best shares they think are in the stock market. So, if you are looking to start investing… maybe look at those companies first. I was told to do this when I first started and invest in some today as we speak.

Ok, I feel like that was a lot to process so we’ll stop here for today. Next episode, we’ll talk with someone who once was a cash kid himself. Remember anyone can be a cash kid but we got to learn how to become one. 

Cash Kid out!

Disclaimer:

The information presented represents the views and opinions of the guests. This show does not intend to provide personal investment advice through this podcast. This content has been made for informational and educational purposes only. To make a full and informed investment decision, we advise you to speak with a financial advisor and for kids, definitely your parents first before investing.