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 1990’s 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 • AT&T • 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 • S&P 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 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)

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