Financial Literacy · Lesson 5

Intro to investing: stocks, risk and diversification

About 15 minutes · 5 activities · Your typed answers are saved in this browser

Everyone at school is talking about a stock that "can't stop going up." Should you buy it? Before you can answer, you need to know what a stock actually is, why its price moves, and how investors protect themselves from the bad years. That's what this lesson is about. By the end, you'll know how to make a Buy, Sell or Wait decision the way Mintly practices decisions: with research and reasons, not hype.

Warm-up · Typing

Would you buy it?

A friend says a company's stock went up 40% this month and everyone's buying. What would you want to know before deciding? Write at least one question.

Saving vs. investing

In Lesson 4 your money sat in a savings account: safe, easy to reach, growing slowly. Investing means putting money into something that could grow faster, like part of a company, while accepting that it could also lose value. That trade-off is called risk. In general, a chance of higher reward comes with a higher chance of loss.

That's why investors use a simple rule: money you'll need soon, like your emergency fund or next month's bus pass, stays in savings. Only money you won't need for years is a candidate for investing, because it has time to recover from bad years.

What is a stock?

Stock (noun)

A small piece of ownership in a company. Each piece is called a share. If you own a share, you own a tiny slice of the company.

Companies sell shares to raise money to grow. After that, people buy and sell shares with each other on a stock exchange. Investors can make money from a stock in two ways:

And there's one way to lose: the price goes down. A share bought at $50 could be worth $30 a year later, or, if the company fails, close to nothing.

Why do prices move?

A stock's price is just what buyers are willing to pay right now. It moves when people change their minds about the company's future. Three things move it most:

Leaf asks If a stock already went up 40% this month, what does the price now "expect" the company to do next? And what happens to the price if the company only does well, not amazing?

Diversification: don't bet it all on one company

No one, not even professionals, can reliably predict which single company will do well next year. So investors spread their money across many companies, industries and types of investments. This is called diversification. If one company has a terrible year, it's only a small part of what you own.

One easy way to diversify is a fund, which pools money from many people to buy many investments at once. An index fund holds every company in a list (an index), such as the 500 large US companies in the S&P 500, so one share of the fund gives you a small piece of all of them.

Activity · Simulation

What happens when one company crashes?

You have $100 of practice money, split equally across some companies. One of them has a terrible year and falls 50%. Change how many companies you own and watch what happens to your $100.

You lose$0
You still have$0

Assumes the other companies stay flat. Diversification lowers the damage from one bad company; it can't stop the whole market from falling.

Making a Buy, Sell or Wait decision

Investors who own a stock decide whether to Buy more, Sell or Wait. In the Mintly simulation you practice the same thinking: you research a real company, ask Leaf questions, and choose Buy, Wait or Pass (pass means you decide not to buy). Then you get a Decision Score. The score isn't about whether the price went up, because nobody controls that. It's about how well you decided: your research, your evidence, your awareness of risk and your reasoning.

Practice, not real money Everything in Mintly uses practice money. Nothing here is financial advice, and Mintly is not a brokerage. In most places you need to be 18, or have a parent or guardian open a custodial account with you, to invest real money.

Try it: Buy, Sell or Wait?

A classmate says a stock "can't lose" because it tripled this month. You haven't read anything about the company. In your practice portfolio, what's the best first move?
You bought a practice share because the company was growing fast. Its latest report shows sales are now shrinking and debt is rising, and you can't find a reason it will turn around. Your reasons for owning it are gone.
You've read three articles that disagree about a company, and you can't yet explain how it makes money.
Activity · Typing

Fill in the missing word

Type the word that completes each sentence, then press Enter or Check.

Wrap-up · Typing

Make your case

At the start, you wrote what you'd want to know:

You haven't written a warm-up answer yet. Scroll up to try it.

Now finish this: "Before I Buy, Sell or Wait on any stock, I will..." Use at least two ideas from this lesson.

Key words from this lesson

Investing
Putting money into something that could grow, with a risk of loss.
Stock / share
Ownership in a company / one piece of that ownership.
Return
How much an investment gained or lost.
Dividend
Part of a company's profit paid to shareholders.
Earnings
How much profit a company makes.
Risk
The chance an investment loses value.
Diversification
Spreading money across many investments.
Index fund
A fund that holds every company in an index.
Decision Score
Mintly's score for how well you decided, not how the price moved.

What's next

You've finished the Financial Literacy course. Now put it into practice: research a real company, ask Leaf, and make your own Buy, Sell or Wait decision in the simulation. Try the simulation →

Quick check

1. What do you own when you buy a share of a company's stock?
2. Which money should stay in savings, not be invested?
3. You own 10 companies equally and one falls 50%. Others stay flat. How much of your total do you lose?
4. In Mintly, what does your Decision Score measure?
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