Investing

1. Investing (Or…some beginning thoughts on how to build wealth since I can’t sing like…well, somebody who is crazy-rich because they CAN sing)

2. Think about these 3 separate ideas for a moment… • What are your GOALS/OBJECTIVES ? • What is your tolerance for RISK? • Patience! short-term V. long-term

3. On a clean sheet of paper • Think for a moment and make a “bucket list” of some of important things you think you might want at different points of your life • You don’t have to describe anything on your list…just write the event down

4. Thinking about your objectives • What would you like to do at different points in your life? How much will you need to make those things happen?WHYare you investing? Rent a nice apt or condo? buy a car? Buy your 1st home and furnish it?

5. Now ask yourself… TWO:How much time do I have to make it happen ? ONE:When I think about these kind of things, how much will I need to make it happen?

6. Risk and Reward • There’s a clear relationship between risk and reward Higher returns = higher risk • Assess your tolerance for risk

7. To reduce your risk: Diversify Increasing potential for higher returns AND Increasing risk Aggressive The Investment Pyramid

8. Investment Choices • There are lots of things that you can invest in…. • Real estate • Precious metals (gold, silver, etc.) • Commodities (generally they are farm products) • Oil and gas • currencies • we will cover only the 2 most common: Stocks and Bonds

9. BONDS • Are debts…like an I.O.U. The issuer (seller) must repay the bond PLUS interest • Who issues bonds? 1. Gov’ts sell bonds to raise money for various reasons: for example: • to pay for the cost of war (WWII war bonds) • to build schools, hospitals, libraries, courthouses, and other public buildings • to build roads, bridges, etc. • in general, to pay for all of the goods/services gov’t. provides

10. Federal Gov’t sells • Treasury Bonds • Treasury Notes • Treasury Bills States, Counties, Cities • municipal bonds (“Munis”) Corporations • Corporate Bonds

11. Bonds have 3 “parts” • Principal– the amount borrowed • Interest Rate– the % paid by the borrower for using the money • Maturity– the date by which the borrower must pay off the bond

12. Who invests in bonds? • People looking to generate an “income stream” (Investors collect the interest and then get their principal back when the bond matures) • Those looking for lower-risk investments • Bonds are rated for safety • Bondholders get higher priority in a bankruptcy • B/C they are relatively safer than many other investments, they are popular with senior citizens

13. Stocks • A common method for companies to raise large sums of cash is to sell stock in the company… if you own a share of stock, you own a piece of the company When a company sells stock for the 1st time: “Initial Public Offering” (an “IPO”)

14. How do I make money in stocks? • Capital Appreciation: “buy low….sell high” • Dividends: cash payment to shareholders by the company from its profits dividends are not automatic…the Board of Directors decides IF and HOW MUCH the dividend will be

15. Where do shares of stock “trade”?(where are they bought / sold?) • The New York Stock Exchange(NYSE) - generally, well-established companies • Nat’l Assoc. of Securities Dealers Automated Quote System…or just NASDAQ

16. Stock symbols • EVERY stock has its own unique symbol • Those traded on the NYSE have 1 to 3 letters: for example - F = Ford Motor Co. - HD= Home Depot - IBM= Int’l Business Machines

17. Stocks traded on NASDAQ have 4 letters: • AAPL= Apple • SIRI= Sirius XM Radio • INTC= Intel Corp.

18. Reading a stock quote http://finance.yahoo.com/marketupdate/overview

19. Stock Indexes • What are they? Quick way to measure how “the market” is doing:

20. The Dow-Jones Industrial Average (the “Dow”) Group of 30 stocks representing the major sectors of the US Economy * Microsoft *Ford and GM * General Electric * Coca Cola * 25 others

21. The Dow is a weighted average of the 30 stocks prices • In theory, if the average goes up, “the Market” in general has moved higher • Weakness of the DJIA: not a very large sample (can just 30 stocks really reflect accurately what the overall market is doing?)

22. The Standard & Poor’s 500 Index • S+P 500 for short • Same concept as the Dow, but uses 500companies • S + P 500 is generally the preferred index to measure market performance

23. Why do stock prices go up or down? • Supply and demand! We want to own shares in companies that are growing profits. Above all else: a company’s stock price is tied to its future earnings If investors believe that earnings will grow, demand for shares of stock in that company grows & it’s price will rise (opposite if investors think earnings will decline)

24. Be Advised! Despite any developments surrounding a company, • A company’s stock price is subject to many currents in the economy • Events specific to that company • Events in that company’s industry • Events of the overall economy • National and/or World events

25. What could change a company’s earnings? • An event or news specific to that company: • A new and exciting product • A new contract • A change of management • Cost-cutting measures such as: • closing unprofitable stores or divisions • Laying off workers

26. What could change a company’s earnings (continued) • The industry the company is in could be changing (are there solar companies out there that could be the next Microsoft?) • Maybe the company & the industry are fine but the entire economy is struggling?

27. Types of Stock • “Growth”stocks: grows in value faster than the S+P 500 Index • “Blue Chip”stocks: stock in companies that are well-established…often household names…leaders in their industry • “Income”stocks: those that pay high dividends

28. “Cyclical” stocks: react to the business cycle…tend to rise when the economy is strong….fall when the economy struggles • “Defensive”stocks: tend to hold value in poor economic cycles, but do not rise as fast in up cycles • “Speculative”stocks: high risk stocks that offer the promise of spectacular returns… usually doesn’t happen!

29. “Stock-picking” isn’t very easy • You might have the right industry…but the wrong company • Negative unforeseen events may occur AFTER you own it • A “solution”? Spread your risk over many stocks… DIVERSIFY

30. Diversify with Mutual Funds • Pools investors’ monies • Professionally managed • Buys 100’s…1,000’s of different stocks and/or bonds • DIVERSIFIES your investment $ • Hundreds of “families of funds” to choose from

31. Exchange Traded Funds • “ETFs” • NOT professionally managed • Mirrors one of the indexes…if the index rises 18% (for ex.), your investment rises 18% • Removes the necessity to be a “stock-picker”