Investing
Investing
Risk
The chance that an investment will decrease in value
Return
The income you earn on an investment
RATE OF RETURN
Return (profit) / Investment
$100 (earned) / $1000 (investment) = 10%
Higher Risk = Higher Rate of Return (or Loss!)
Investing
Diversification
Consider:
You financial situation
Your risk tolerance
Your values
Investing in Corporations
Share of stock
Unit of ownership
Stockholders
Owners of a company
Dividend
Portion of the profits
Bought and sold
Stock exchange
Electronic system – NASDAQ
Usually round lots of 100 share
STOCK EXCHANGE
Transactions
When shares are bought or sold
Stockbroker
Person who handles the transfer of stocks and
bonds between buyers and sellers
STOCK EXCHANGE
Brokerage firm
Company that specializes in buying and selling
stocks and bonds
Fees charged for services
Stock exchange
Location where orders to buy or sell stock are
sent and carried out
NYSE on Wall Street in NY
NASDAQ
National Association of Securities Dealers
Automated Quotation System
In 1990’s became most common way to trade
stock
Electronically links brokerage firms
Transactions without central location
Making Money from Stocks
Dividends
Selling
Capital gain
Capital loss
Types of Stock
Preferred Stock
Non-voting share
Fixed dividend, unless company incurs loss
Receive assets if company goes under before
common stockholders
Types of stock
Common Stock
Voting share
No set dividend
Board of Directors (elected by shareholders) decide
on dividends
No assets if company goes under (and after
preferred stockholders)
Riskier than preferred stock (possibility of
higher return)
Frequent price changes
Remember..
The only way to earn money is to sell the
stock.
You are never guaranteed your
investment back..
No matter which stock you buy!
Investigate a company before buying
Blue chip stocks
Large, well-established companies
History of steady sales and profits
Usually pay dividends
Dividends usually grow
Values do no change rapidly
AT&T
Ford
GM
Growth stocks
Small/young companies
New products
Little to no dividends
Profits used to purchase new equipment
or research
Expected to experience rapid growth
Higher risk
Mutual Funds
Group of investments owned by many
investors
Investors buy shares of the fund
Fund pools money to buy a variety of
stocks and investments
Diversify your investment
Benefit of services of investment
professionals who make decisions for you
Mutual Funds
Minimum deposit ($1000) or more
Value changes with the value of stocks or
bonds
Mutual Fund
Maintenance fees
Annual fees = .2 percent of the value of
investment to 3% or more
Some mutual funds have LOAD (5-6%)
Front end load – fees paid upon purchase
Back-end load – fees paid when sold
Pays salespeople who market fund
NO-LOAD
No sales people
You request an order form, complete, return with
payment
Mutual Fund Investment Objectives
Growth Funds
Growth and income
Income funds
Tax-free funds (municipal bonds)
Smaller dividends, larger capital gains
Lower Risk and Greater Risk and
Growth funds
Potential Return Potential Return
Growth and Income funds
Income funds Tax-free funds
Higher dividends, lower capital gains
Mutual Fund Investment Objectives
Risk/Return (see pyramid)
Global funds in businesses located in
many nations
Index funds in stocks that an index is
based on
S&P 500 Index – group of stocks economists
use to judge the overall performance of the
stock market (this fund invests in these stocks)
Finding Investment Information
Request annual reports from company
Prospectus – mutual fund
Ask a stockbroker
Full-service broker – provides info and advice
Discount brokers – no info or advice
Advice
Invest through large, well established
stock brokerage firms
Ask name, address, info of any company
asking you to invest—check them out!
Get investment offer in writing
Avoid a hard sales pitch to buy NOW
―inside‖ information is dishonest and
fraudulent
Immediate payment is NOT due (5 days)
Regulation
SEC prevents insider trading – trading
stock based on info not available to the
general public
Retirement
Pension plans (not so common any more)
401K plans through employer
Employee matching program
Portable
Choose investment plan
May be tax-deferred
Individual Retirement Account (IRA)
Traditional – tax-deferred
Roth – no taxes upon usage
Maximum yearly investment ($2,000)
Investments
Investment Clubs
Real Estate
Your home
Rental property
Collectibles
Collecting for profit is risky
Additional information
Odd lots vs. round lots
Bear market (prices of a certain group fo
securities are falling or expected to fall)
Bull market (prices are rising or expected
to rise)
Corporate bonds
Municipal bonds
American Stock Exchange