FINANCE

Finance

• Over the next two weeks we are going to be diving into finance– Business Finance• Money management, budgeting, payroll, income,

banking

– Personal Finance• Taxes, Mortgages, Budgeting

Finance

• A financial tool in which one puts money for a period of time in exchange for a chance to earn interest or a return on that money

• There are various ways that people can “invest” their money

With a partner

• For 2 minutes talk with your neighbour about a few different ways that someone can invest their money.

• Think about ways that you may have invested over the years in order to receive a larger return

One example we have all seen

Investing

• Why were the Dragon’s interested in investing in these small starter businesses?

Other Investments

• Savings and Chequing Accounts (Your bank account)

• Stocks• Bonds• Mutual Funds• GIC’s

• These are known as financial instruments

Financial Instruments

• The different financial instruments all have differing characteristics– Safety of Principal• The risk of losing the money you invested

– A good return• Receiving money back on top of your principal

– An increase of Capital• If the stock or bond is worth more later than when you

bought it

Rules of Investment

• If there was one rule to investing it is...

Fantasy Football Comparison

We will get to stocks....... But first

Bonds

• Banks and Companies issue bonds in order to borrow money to run their institutions

• In return for borrowing your money you get– Your Principal in Full– Interest on that investment – All at an agreed date– A relatively risk free way of making money

Bonds

• Ratings– AAA – highest rating given to the most secure

bonds• Financial Institutions and well established businesses• Almost an absolute guarantee you get your money back

– AA – A– BBB

• The lower the rating – the higher the interest rate

Savings Bonds

• Canada Savings Bond– Issued by the federal government– Unique in that it • is risk free• You can get your money back at any point

– A minimum $100 investment

Stocks

• As we will learn by watching the movie WALL STREET– Buying stock is buying partial ownership in a

company– We buy stock in the hopes of • Sharing in the Profits of the business

– Dividends – a pay out of profits from the company

• Selling the stock for a higher price than we bought it

Stocks

• The riskiest financial instrument– But also the highest potential for a large return

• You must go through a stock broker that will purchase stocks for you for a fee– They will go to the stock exchange and find a seller of the stock

Stocks

• Investors want to get in on the ground level for stocks and see the price of their shares rise

• Investors follow trends and try to speculate where stocks will be– Illegal: Insider trading

• Talking to those within a company that have “inside information” about the dealings of that company

– Legal: Dow Jones Index• A grouping of 20 of North America’s most successful

businesses that tend to follow the financial trend of the economy in general

Dow Jones

Investing

• Mutual Funds– A combination of stocks and bonds that are taken care of by a

profession fund manager– The fund manager buys and sells the stocks and bonds in order to

get your a return on your money– Riskier than bonds, but not as much as stocks

– Guaranteed Investment Certificates (GIC’s)– An investment of a principal that may not be withdrawn for a

certain amount of time– After a fixed term you receive your money back plus an agreed

interest rate• The interest rate will be higher than your saving account

InvestingFinancial Tool Safety Income (if

invested)Growth

Bonds High Steady Income Limited

Stocks Relatively Low Variable Highest Potential

GIC Very High Guaranteed Set Amount Return

Set at the date of investment

Mutual Funds Fairly Safe Moderate Moderate

Today’s Assignment

• NYSE stock lookup assignment

• This website will help you a lot http://www.investopedia.com/university/stocks/stocks6.asp