Clarification of Investment Terms
First Things First…
For stocks, one point equals one dollar.
If the stock is up 2 points, it is up 2 dollars. If percentages are being used, it will say percentage points.
NYSE DJ Last 56.20 Net Change 19.87
Clarification #1
Savings and Investments are different
Savings:
Investments
Short Term Low Risk Safe Lower Return Not supposed to be retirement money…but will feed your retirement fund. Need to know your goals
Long Term Higher Risk Higher Return potential Not supposed to be retirement money…but will feed your retirement fund. Need to know your goals
Clarification #2 Income vs. Growth Investments
Income = Lender
Savings Accts, Bonds, CDs, Money Market Accts Stocks, Real Estate, Collectibles
Growth = Owner
Mutual Funds
Pool money from investors Some are designed to be income, others are growth
Clarification #3
There are seven common stock classifications
Growth Income Value Countercyclical Cyclical Speculative Blue Chip
LOOK ON PAGE 2 OF YOUR ‘LANGUAGE OF THE STOCK MARKET’ HANDOUT
Clarification #4 How to research a stock
1.
1.
Book Value
Assets-Liabilities = Net worth or book value
2.
1.
Earnings Per Share
How much money is available to pay dividends and reinvest. These should increase overtime.
3.
1.
Price/Earnings Ratio (P/E Ratio)
How much money investors are willing to pay for each dollar of a company’s earnings.
4.
1.
Beta
Measures a stock volatility compared to the overall market.
Clarification #5 Reading Stock Quotes
Each Column represents a different piece of information about a specific company.
YLD%: .36/13.95 = .0258 = 2.6%
Clarification #6 Stock Market Indicators
“A taste of the market.” The Dow Jones industrial average
30 leading blue chips
More accurate than Dow
The Standard and Poor’s 500
The NASDAQ
More dramatic ups and downs
Clarification #7 Organized Stock Exchanges
Where stocks are bought or sold New York Stock Exchange
2,800 companies Younger, smaller companies
The American Stock Exchange
Regional Stock Exchanges NASDAQ
Over the counter 4,000 companies
Clarification #8 How a stock is bought and sold
Think of an auction Stockbroker requests quotes from the trading floor and client accepts. Floor clerk is signaled who tells the floor broker. The floor brokers go to trading posts. Specialist ensures the trade is fair. A deal is made.
Stock Exchanges
Stock Exchanges
Any other clarifications??
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