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The Fundamentals of Investing

The Fundamentals of Investing. Part 2. Types of Investment Tools. What do you already know about each investment tool?. Returns. The money an investor makes on a stock is called a return . Capital Gains Dividends.

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The Fundamentals of Investing

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  1. The Fundamentals of Investing Part 2

  2. Types of Investment Tools What do you already know about each investment tool?

  3. Returns • The money an investor makes on a stock is called a return. • Capital Gains • Dividends

  4. Some stocks also pay a dividend which is a payment made by a corporation to its shareholders, usually as a distribution of profits.

  5. Stock Returns - Dividends

  6. Capital gains are included in income for tax purposes. Long-term capital gains are taxed at a lower rate than short-term capital gains The money I have made from the sale of my stock is called a capital gain.

  7. Stock Returns – Capital Gains/Losses

  8. A stock splitis a decision by the company's board of directors to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split, every  Panera shareholder with one stock is given an additional share. Therefore I would now have 200 shares of Panera stock, but they will be worth half of the current market price

  9. Real Estate Ownership of residential or commercial property or land Real estate can be time consuming but the potential for returns is high

  10. Mutual Funds When a company combines the funds of many different investors and then invests that money in a diversified portfolio of stocks and bonds

  11. Mutual Funds Reduces investment risk Fees may be high Saves investors time

  12. Mutual Funds http://www.youtube.com/watch?v=3RU4y1JFzEI

  13. Ariana has $150 to InvestOption 1 – Buy Stock Ariana invests in one company’s stock Company C has had a bad year and their market price drops significantly. Ariana may lose her $150 investment

  14. Ariana Has $150 to InvestOption 2 – Buy a Mutual Fund • Market price of companies C and F decreased • Market price increased for all other companies • Ariana has reduced her investment risk and may still earn money

  15. Lending vs. Owning When investing, consumers either lend money to the company/organization or they own the asset Examples Returns

  16. Investment Philosophy If someone was an aggressive investor, what types of investment tools would they primarily have in their portfolio?

  17. Portfolio Diversification Investing in a mutual fund is an automatic form of portfolio diversification

  18. Stock Exchange Investments are purchased from a stock exchange (except for real estate and collectibles)

  19. Brokerage Firms Brokerage firms facilitate the buying and selling of investments on the stock exchange

  20. Discount Brokerage Firm Fees Will usually charge a fee for completing a buy/sell transaction • Additional fees may include: Total fees are often lower, but an individual must have the knowledge and time to monitor their investments

  21. Full-Service Brokerage Firm Fees Financial advisors are compensated for the time and knowledge they provide investors. Most charge fees using one of these methods. In addition to fees, financial advisors may earn commissions paid by the company.

  22. Choosing a Brokerage Firm Important to research the financial advisor and firm he/she works for

  23. Interest on Investments/Savings http://www.investopedia.com/video/play/rule-of-72/ Rule of 72 A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.

  24. Simple Interest

  25. Compound Interest http://www.youtube.com/watch?v=L19GLNb_HJI

  26. Compound Interest Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.

  27. STOP here

  28. Tax-Advantaged Investments Savings and investments are a form of unearned income and therefore subject to income tax Tax-advantaged investments reduce, defer or adjust the current year tax liability • Most common: • Retirement • Education Government encourages people to invest in certain types of investments

  29. When are taxes for tax-advantaged investments usually paid? OR

  30. Investing for Retirement

  31. Retirement Accounts The trade-off to tax advantages is most accounts have penalties if money is withdrawn early There are many other types of plans available

  32. Summary

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