How do stocks make money? (Part 2)

Investing in the stock market offers significantly higher growth potential than traditional savings accounts, which typically provide only modest interest. Young investor Joshua demonstrates this by choosing an S&P 500 exchange-traded fund (ETF) over a "Bank of Dad" certificate of deposit (CD) that offered a guaranteed 6% return. This choice highlights the fundamental trade-off between risk and reward, as the stock market's volatility introduces emotional stress but provides a tangible lesson in long-term wealth building. Joshua’s father, Michael, emphasizes that using real money makes complex financial concepts like diversification and market fluctuations more concrete. Key insights include the necessity of only investing capital one can afford to lose, the benefits of diversifying through index-style funds to spread risk, and the importance of maintaining a long-term perspective rather than reacting to daily price changes. This hands-on experience transforms abstract economic theories into practical life lessons regarding financial management.