Investing

What is Investing?

Planning to use your money for the future

Making Money with Money Risk is going to be involved

Higher Risk=Higher Rate of Return (or Loss)! Return is the amount of money earned

on an investment RATE OF RETURN

Return (profit) / Investment $100 (earned) / $1000 (investment) = 10%

How to Make Investment Choices?

Consider: Financial Situation Risk Tolerance Values Goals

Diversification – spreading your money out over several different investments

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 Market Price of Common Stock is determined by the

demand for the stock

Types of Stock

Preferred Stock Non-voting share Fixed dividend, unless company incurs loss Receive assets if company goes under before

common stockholders

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 IBM GE

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

Making Money from Stocks

Dividends - Distribution of a portion of a company's earnings, decided by the board of directors to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share.

Selling Capital gain Capital loss

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!

Stocks are better used as a long-term investment compared to a short term investment

Investigate a company before buying

Yield

Annual Dividend of an Investment/current market value (current price)

Yield = a % Increase in current yield is healthy

Earnings Per Share

Corporations after tax earnings / the number of outstanding shares (shares people own)

Measure the amount of profit for each share

Increase is a good thing

PE Ratio

Price Earnings Ratio Price of one stock/corporations

earnings per share Low PE is a good sign Low PE indicates the company has a

lot of earnings when compared to the price of the stock

Net Change

Difference between the close of a stock on one day and that of the opening on a new day.

You would want a high change because more people are demanding the stock.

Regulation

Security and Exchange Commission (SEC) – enforces laws concerning the trading of stocks and bonds and licenses stockholders

SEC prevents insider trading – trading stock based on info not available to the general public

Total Return

Original Investment = Shares * Cost Dividend * Number of Shares * Years

= Current Return (Selling Price Per Share – Purchase Price

Per Share)*Number of Shares Held = Capital Gain

Current Return + Capital Gain = Total Return$

Total Return/Original Investment = Rate of Return

/$6375 = 34%

Bonds

Bondholder is a creditor of the company issuing the bond

Bonds essentially a loan to a company or government for repayment in the future

Retirement

401K plans through employer Employee matching program Portable Choose investment plan Can be tax deferred

Pension plans (not so common any more) Offered by Corporations as a benefit for lengthy

employment Designed to provide retirement income Usually a portion of what the employee was

making before retirement

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 Value changes with the value of stocks or

bonds

Finding Investment Information

Wall Street Journal Info on businesses, banks, government, foreign

nations Quotes stocks (ticker symbol), bonds, mutual

funds Forbes, Fortune, Kiplinger’s Personal

Finance Magazine, Money Internet

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)

Now What?

How does diversification help limit risk? How does age and financial situation

affect how you make investment decisions?

David wanted to become a chef after high school and own a restaurant. His parents cannot afford to send him to school. Currently, he is working in the kitchen of a local restaurant. How can David turn his job into a career and achieve both his short- and long-term goals?

Amy has saved $2000 toward a new car. It will cost her $4000 for a down payment on the purchase of her new car. What do you recommend Amy do between now and the next 24 months to meet the financial needs of her new car?

Jane's grandmother have her $500 for high school graduation. She would like to use the money in September for college. What do you recommend she doe with the cash to meet her financial needs in college?

Van has $1200 in a savings account that is earning 2.5% compound interest. Van has designated this money for a down payment on condo that he will purchase in 5 years. What do you recommend Van do with this cash?

Last year, Monique bought 300 shares of AT&T for $31.25 per share. Today, AT&T is valued at $35.20 per share. Monique wants to use the money from this return to start her own business. Should she sell today or hold on to the shares for another 6 months? Why or why not?

Tula is 24 years old. She is investing in X Corporation as part of her retirement plan. Should she purchase a bond or stock? Why?

Keyshawn has just graduated from college and accepted a job. The company offers a retirement plan. Keyshawn is nervous about his ability to pay for his apartment and his car and cannot decide whether to invest in the plan now, or to wait until his financial situation improves. What advise would you give him?

The county in which Marie Kilmore lives is selling bonds to finance a new storm sewer system. Marie knows that the storm sewers need replacing because her street was flooded last week. At the same time, she knows that her country is not very stable financially. She is not sure that the bonds are a good investment. She should buy the bond to help improver her community and her own personally living conditions, or should she invest her money in another way that has a better chance of helping her meet her financial goals? Explain

Discuss ways in which securities issued by state and local governments are similar to corporate bonds. Also explain why the government or a company decides to issue bonds.