Investing

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					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

				
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