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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 ... – PowerPoint PPT presentation

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Title: Investing


1
Investing
2
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!)

3
Investing
  • Diversification
  • Consider
  • You financial situation
  • Your risk tolerance
  • Your values

4
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

5
STOCK EXCHANGE
  • Transactions
  • When shares are bought or sold
  • Stockbroker
  • Person who handles the transfer of stocks and
    bonds between buyers and sellers

6
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

7
NASDAQ
  • National Association of Securities Dealers
    Automated Quotation System
  • In 1990s became most common way to trade stock
  • Electronically links brokerage firms
  • Transactions without central location

8
Making Money from Stocks
  • Dividends
  • Selling
  • Capital gain
  • Capital loss

9
Types of Stock
  • Preferred Stock
  • Non-voting share
  • Fixed dividend, unless company incurs loss
  • Receive assets if company goes under before
    common stockholders

10
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

11
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

12
Blue chip stocks
  • Large, well-established companies
  • History of steady sales and profits
  • Usually pay dividends
  • Dividends usually grow
  • Values do no change rapidly
  • ATT
  • Ford
  • GM

13
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

14
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

15
Mutual Funds
  • Minimum deposit (1000) or more
  • Value changes with the value of stocks or bonds

16
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

17
Mutual Fund Investment Objectives
  • Growth Funds
  • Growth and income
  • Income funds
  • Tax-free funds (municipal bonds)

Smaller dividends, larger capital gains
Lower Risk and Potential Return
Greater Risk and Potential Return
Growth funds
Growth and Income funds
Income funds
Tax-free funds
Higher dividends, lower capital gains
18
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
  • SP 500 Index group of stocks economists use to
    judge the overall performance of the stock market
    (this fund invests in these stocks)

19
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

20
Advice
  • Invest through large, well established stock
    brokerage firms
  • Ask name, address, info of any company asking you
    to investcheck 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)

21
Regulation
  • SEC prevents insider trading trading stock
    based on info not available to the general public

22
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)

23
Investments
  • Investment Clubs
  • Real Estate
  • Your home
  • Rental property
  • Collectibles
  • Collecting for profit is risky

24
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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