Financial stocks lifted the S&P 500 as the index notched a fourth consecutive session of gains.
You and your kids hear the names in the headlines almost daily. The DOW. The NASDAQ. The S&P.
“Dad, what’s the S&P?”
“It’s a stock market index.”
“Ummm... Ask your mom.”
The next time it comes up, don’t dodge it. Don’t pass the buck. But, don’t try to explain it either.
Sit your kid down in front of the interactive map at FinViz.com and show her instead.
- What are all those little tiles? Each tile is one of the 500 companies in the S&P 500. Fly over a few with the mouse. Recognize any?
- Why is the Apple tile called AAPL? Those initials are like the company’s nickname on the stock market. It’s called the ticker symbol.
- Why is AAPL so much bigger than the others? The more valuable the company, the bigger the tile. Apple is killing it. (That’s why they’re building a spaceship for their headquarters.) Can you find Starbucks? Disney? Nike? (Hint: Look in the Consumer Goods section. See the groupings and sub-groupings?) How do the company sizes compare? Any surprises?
- What do the colors mean? Green means the company got more valuable today. It’s stock price went up. People were willing to pay more for a share of the stock at the end of the day than at the beginning. Red means it’s value went down. Grey means it didn’t change. Mouse over the company’s tile to see a pop-up chart of how the price fluctuated throughout the day. Who are the big losers? The winners? Any surprises? There’s always a mix.
- But some of today’s losers seem like great companies. Did they just have a bad day? Use the little pull-down menu on the left to change the time frame to a longer period. Try 1 month, 2 months, 6 months, a year. What do you notice? What companies are green over all the periods? What about the overall color of all the tiles together? How does that change as the periods change? What’s more likely to be green over time: all the tile colors mushed together or one tile chosen at random? Try picking a few to see.
- So who picks these 500 companies anyway? Some group of nerdy economists. They get together and choose the 500 large companies they think are most representative of the overall U.S. economy. How do they figure that out? Go ask your mom...
Why does it matter if your kid knows what an index is? Because one of the world’s richest men and greatest investors, Warren Buffett, has some sage advice: invest in a low-cost S&P 500 index fund.
Now your kid knows what the S&P is and why buying all the stocks in it is a smart play (see #5 above).
And when your kid opens a Roth IRA with that first summer job, she’ll know exactly where to invest the funds for the long term. Move over Warren.
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