Equity Investing
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Categories of Investments
Ownership
Loanership
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Risk Pyramid
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Common Stock
Share of ownership in a company
Elect directors Vote on other matters Two ways to earn money
– value of stock increases – stock pays dividends
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Historically, common stocks have out-performed all other investments!
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To Learn About Stocks
Read magazines
Read newspapers Investigate Web sites Find other written materials (e.g., ValueLine)
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Categories of Stocks
Growth
Income Speculative Value Blue chip
Penny
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Keeping Track
Indexes of market activity
Beta Annual report Income statements Ratios
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Keeping Track: Indexes
Dow Jones Industrial Average Standard & Poor’s 500 New York Stock Exchange Composite American Stock Exchange Composite NASDAQ (National Association of Securities Dealers) Composite
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Keeping Track: Beta
Measures how much the stock price changes (volatility)
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Keeping Track: Annual Report
Lists company assets and liabilities
Reports changes in company operations.
Some are online at www.prars.com
Read it!
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Keeping Track: Income Statements
Describe net income or loss per share
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Keeping Track: Ratios
Current
Debt-to-equity P/E (Price/Earnings)
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Buying/Selling Stock
Stock can be bought or sold on one of nine major exchanges
Newspapers typically report current prices and sales on the New York, American and NASDAQ exchanges
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Newspaper Reports
NYSE
52-Week
High 96.13 Low 48.38 AT&T
Sales
(000s) 12728 Last 85.56 Chg -2.44
51.25
8.50 68.00
22.94
3.44 47.44
Compaq
Ethyl Litton
21938
66 53
32.75
4.69 56.94
-1.63
- .13 + .07
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Fees
Cost of purchase and sale may include brokerage fees Comparison shop
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Other Stock Purchase Methods
Direct Purchase Plans (DPPs)
Investment clubs Online brokerage firms via the Internet
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DRIPs
Dividend Reinvestment Plans
Automatically reinvest stock earnings
Generally have low or no fees
Must be a “shareholder of record”
Stock earnings are taxable
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Investing Strategies
Dollar-Cost
Averaging
Buy
and Hold
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Real Estate
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Real Estate Options
Home Rental property Crop/mineral land Land for development Real Estate Investment Trust (REIT) Real estate limited partnership
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Costs of Purchasing Real Estate
Real estate commissions Transfer and recording fees Attorney fees Title search fees Appraisal fees Surveying fees Inspection fees Loan fees
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Costs of Real Estate Ownership
Maintenance
– regular – occasional
Insurance Taxes
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Sources of Income
Rent of a building or part of it
Rent of land Sale of crops or minerals Increase in value of the real estate
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Indirect Ways to Invest in Real Estate
Real Estate Limited Partnerships
Real Estate Investment Trusts (REITs)
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Equity Unit Investment Trusts (UITs)
Group of professionally selected stocks held for the life of trust A buy and hold investment Units generally cost $1,000 Mature in about 6 years Tax efficient Front-end load
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UIT Strategies
10 highest-yielding stocks in the Dow
Stocks of foreign countries Particular industry sectors (e.g., technology) Specific states or regions
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Equity Mutual Funds
Professionally managed portfolio of equity assets (e.g., stocks)
Minimum purchase amount set by fund Major objective: capital appreciation
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Examples of Equity Mutual Funds
Growth
Aggressive Growth Equity-Income Focus Global
Gold
Index International Momentum Regional
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Collectibles
Stamps Coins Art Cars Autographs Toys Books Cards
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To Make Money With Collectibles
Keep items in top condition
Focus on true value of property Document evidence of value Insure property You may have to wait for right buyer
No regular income provided
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Owning a Business
Many options
Know the risks Plan carefully Get help
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Commodities
Very high risk
Be sure you can afford to lose Weigh costs of buying, selling, owning Know a lot about the commodity Know about the markets where it is created, and sold Be aware of pertinent factors
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Buying and Selling Equity Investments
Learn where and how they are purchased
Compare services and costs
Take advantage of Direct Purchase Plans (DPPs)
Participate in an investment club
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Investing via the Internet
Be sure you have the equipment needed
Learn the process Sign up for an account Invest carefully
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Diversify!
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When Selecting Equity Investments, Compare...
Rate of return
Maturity Minimum initial investment
Minimum subsequent investment
Tax advantages
Frequency of distributions
Capital gain payouts
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Summary
Equity investing means you are a partial owner of a company or piece of property Goal is capital appreciation
There could be some regular income
Investigate equity investment options
Diversify
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Some Action Steps
List your financial goals and match them with equity investments
Read about equity investments
Learn about investments available through employer plans
Research investments, comparing at least three specific products
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