You see yourself as fairly financially knowledgeable. You’re participating in an employee match program for your 401(k) and you’ve opened a Roth IRA. Of course, you’ve got an emergency fund — and in a high-yield savings account, no less. You’re well on your way to a bright financial future.
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There’s just one thing you’re not doing yet. And only because you’re not sure how — it seems too hard.
Investing feels like it has its own special language and code. You’re not sure how to get started, let alone succeed. Smart investing feels like something you need specialty training to master. But what if investing wisely weren’t a struggle, but something anyone — even a 12-year-old — could learn?
That’s the question that GOBankingRates posed to ChatGPT, asking it to explain smart investing as if we were 12 years old. We learned quite a bit — at least enough to start. Given that ChatGPT isn’t perfect, or perfectly accurate, you’ll still want to use what we learned to start a conversation with your financial advisor.
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A Seed Metaphor
ChatGPT likened traditional ways of saving to dropping money in a piggybank. Sure, it keeps your money secure, but the amount within remains static. Investing, however, is like planting a seed that grows into a tree — your money goes to work, doing some growing of its own.
“Investing means you use your money to buy something like a piece of a company (called a stock), or let a bank or the government borrow it (called a bond), or even buy a small part of a building (called real estate),” it explained. “If those things do well — like if the company makes a lot of money — then your piece becomes more valuable, and you earn more money.”
Of course, there are risks involved. If the company doesn’t do well, your investment could lose value. ChatGPT reminds us that, to mitigate this risk, smart investors don’t put all their money in one place — a principle known as diversification.
Three Rules for Smart Investing
To keep things simple, like a 12-year-old could understand, ChatGPT broke investing down into three basic rules.
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Learn first. Before you jump into the market, spend time learning how it works. That could mean listening to podcasts about investing, reading books on the stock market, or just familiarizing yourself with common terms. And before you make any moves, it’s wise to consult with a trusted investment advisor.
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Diversify. Spread your money across multiple companies, industries, or even geographic regions. You don’t want all your money — or all your risk — concentrated in one place.
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Be patient. “Smart investing usually takes years to really pay off,” ChatGPT reminded us. “It’s like being a money-grower, not just a money-saver!”
Smart Investing Is All About Your Goals
Remember, what may be a smart move for someone else might not be smart for you — and vice versa. Your investing decisions should align with your personal goals, your timeline, and your comfort with risk.
Sticking with the enterprising 12-year-old theme, ChatGPT gave an example: Let’s say your goal is to buy a “cool electric scooter” in three years.
Suppose you’re saving $10 a month and don’t want to lose money. In that case, ChatGPT suggests putting half in a savings account for safety, and the other half in a stock fund that could grow your money — though with some risk.
“That combo matches your goal, your comfort with risk, and your timeline,” ChatGPT said. “That’s a smart investing decision for you.”
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Bottom Line
You don’t need to be a super-genius or a Wall Street whiz to make smart investments. All you need is some basic knowledge, a few guiding principles and maybe even a chatbot to explain it in plain English.
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This article originally appeared on GOBankingRates.com: I Asked ChatGPT To Explain ‘Smart Investing’ to Me Like I’m 12 — Here’s What It Said
