Part of learning about finance is diving into the world of the stock market. Kids who are just starting to learn about this area of investment need to have a solid grasp of a few fundamental concepts before they really can make shares work for them.

Stock and bonds are not the same.

Many parents start their kids investing by buying bonds for them. This is a great way to move them away from regular cash and get them thinking about more long-term savings options. Even so, bonds and stocks are very different, and you need to make this difference clear. Bonds, like stocks, essentially represent a loan that a buyer has given to a business. Stocks, however, are connected to ownership in the company. When your child buys one, the company turns over a small slice of control to him, and his shares entitle him to a percentage of whatever money the company makes. Getting this idea across is very important, because it shows your child that owning stocks makes him an active part of the business, with the ability to influence operations and policies instead of just making some money. It’s also critical for your child to understand that the risk of losing funds is greater with stock—many bonds are guaranteed or backed, but with stocks, getting any sort of return depends on the company making a good profit.

It isn’t necessary to have a lot of money to invest.

Some parents avoid letting kids invest because they think it takes a ton of money. Although it’s true that some stocks can be several hundred dollars each (e.g., Apple), many are much more reasonable. Additionally, many brokers will let a person buy a small handful of shares because they get a commission for every trade. Most people don’t do this because transaction fees can make it too inefficient, but it sometimes is worth it if you and your child can find a company with a decent price that has excellent projections. Another option is to put money into mutual funds, which essentially are accounts with money from many different investors—brokers take this pooled money and invest it based on what the shareholders want to achieve.

Diversification matters.

In general, financial experts assert that the safest portfolios are those that are highly diverse. For example, one might have some stocks, bonds, real estate, cash, an IRA and bank accounts. Your child’s stock portfolio can be diverse by itself, however, because if one company’s stock tanks, your child won’t lose everything. This is another reason why buying just a few stocks of a single company isn’t always the best option. As you and your child aim to keep a broad approach, teach him that investing in many different companies isn’t always enough—he also needs to invest in many different industries, because some problems, such as a lack of a particular supply, can hit the majority of businesses in a sector.

There are fees for every transaction, and long-term investment is a good thing.

Kids often are still quite emotion-based. They are still gaining the experience that lets them rationalize and make good, logical decisions, so they often do things based on how they feel in the moment. For this reason, you need to stress that there is a fee for every stock market transaction—in short, the more your child trades, the more he pays out to brokers. This drastically can reduce his profit margin, so in many cases, it’s best for your child to look for a long-term stock he can buy and then leave alone for a while.

The stock market is now, and it is personal.

Some kids have a mistaken concept that the stock market deals only with “old” stuff like oil and construction. “Adult” companies certainly offer shares, but many other companies your kids probably already know and support (e.g., McDonald’s, Disney, Facebook) are traded, too. You can sit down with your child and talk about what he really likes, and once he has a sense of what he’s really passionate about, you can look together for a kid-friendly company that is in line with his interests and ideals. There are dozens upon dozens of good choices!