Introduction to the Stock Market

The Basics of Stock Investing

Why Invest Money?• You must earn more than the rate of inflation to raise wealth

• Stocks & Bonds are common investment options– Bonds: a loan to a Gov’t or business where you earn interest– Stocks: You become part owner in a company

YourMoney

U.S. Gov’t 5-Year Bond

$1,000

You are paid 3% interest $30 per year

• The longer the holding period----the more risk you should take!– Stocks = long term investment (5-years or longer) – Bonds = medium term investment ( 1-3 years)– Bank CD’s = short term investment (30 days to 2 years)

Average return per year 1926 - 2000

Why Companies Issue Stock

• To raise money to expand/ run business– Investment Banks help companies issue stock

• IPO = initial public offering– When a new company sells stock for the 1st time

Stock Market Introduction Worksheet

$10,000 invested today would be worth: Return 15-years 30-years

Per year |-------Holding Period----| 2.0% $13,459 $18,114 3.0% $15,580 $24,273 5.0% $20,789 $43,219 6.0% $23,966 $57,435 7.0% $27,590 $76,123

10.0% $41,772 $174,494 12.0% $54,736 $299,599 14.0% $71,379 $509,502 15.0% $81,371 $662,118

Sectors of Stock Market• Technology• Transportation• Retail• Financials• Energy• Health Care• Defense• New Industries (looking to the future…)

Industry Type

2 Goals of a Company

1) Maximize Profits (each year)

2) Grow Profits (over time)

have the best stock performance

Companies that grow PROFITS the fastest

Key Stock Indices

• S&P 500 Index– Largest 500 companies by $ value

• Dow Jones– 30 very large American companies

• Nasdaq– primarily technology stocks

WHY INDICES:

There are over 5,000 stocks!

Indices give the average Performance of the overall

market

COMPANYNAME

3M Co.

Alcoa Inc.

Altria Group Inc.

American Express Co.

American International Group Inc.

AT&T Inc.

Boeing Co.

Caterpillar Inc.

Citigroup Inc.

Coca-Cola Co.

E.I. DuPont de Nemours & Co.

Exxon Mobil Corp.

General Electric Co.

General Motors Corp.

Hewlett-Packard Co.

Home Depot Inc.

Honeywell International Inc.

Intel Corp.

International Business Machines Corp.

Johnson & Johnson

JPMorgan Chase & Co.

McDonald's Corp.

Merck & Co. Inc.

Microsoft Corp.

Pfizer Inc.

Procter & Gamble Co.

United Technologies Corp.

Verizon Communications Inc.

Wal-Mart Stores Inc.

Walt Disney Co.

Stocks in

Dow Jones Index

BULL or BEAR MARKET?

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Recent Stock Market History

• Stock market hit a high in March of 2000– 3 years of negative returns followed [2000,2001,2002]

• 2003 SP500 +26.0% • 2004 SP500 +9.0%• 2005 SP500 +3.1%• 2006 SP500 +13.6%• 2007 SP500 +3.5%• 2008 -40.0%• 2009 +25%• 2010 +13.0%• 2011 -6.0%

Top 10 things to know about Stocks

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