Understanding the Words of Wall Street:Putting your money to work

Investment Pyramid

Collectibles

Property

Government Bonds, Certificates of Deposit (CD’s)

Savings/checking accounts

Stocks

IRA’s/401k’s

Corporate Bonds

Mutual Funds

Increasing Risk = Increased chance of larger rate of return.

More Volatile/Speculative Investments and decreased liquidity

More Conservative Investments and increased liquidity

Investments on bottom of pyramid = low risk & low rate of return!

So What is a Stock?

Stocks:• Ownership interest in a

company• When you own stock/shares in

a company essentially you own part of the company.

Why buy a stock?

You will have…• Possibility to sell shares at a

higher price later. (buy low, sell high)

• May receive dividends (profit or AKA earnings)

• Possible claim on assets• Voting rights

Preferred vs Common Stock

• Preferred Stock:• Pays a fixed dividend

• Common Stock:• Voting rights• More Volatile

Where Are Stocks Bought & Sold?

Market

Buyers Sellers

Major Stock Markets

• New York Stock Exchange (NYSE)• Oldest, largest exchange

• NASDAQ• Pure Electronic Exchange

Video

What affects the Price of a Stock?

• Fundamentally: • Supply and Demand

• Demand is effected by…• Company Health / Outlook• Industry Trends• Economy• National & World Events

Confidence and Fear

Advantages vs. Disadvantages

• Advantages:• Medium to High return potential

• Historically 10%-12% return• Highly Liquid

• Disadvantage:• Medium to High risk• Highly volatile

Buying Stocks

Broker• A licensed professional that buys

and sell stocks for investors. • Example: Schwab, Edward Jones

Pro Con

Expertise High Fees & Commissions

Buying Stocks

Online• A website that allows users to buy

and sell stocks. • Example: Ameritrade

Pro Con

Low cost Limited Assistance

Income Stocks

• Older, stable companies• High dividends, low growth• Utility companies: ComEd• Low Risk/Low Return• Good for older investors

Blue-Chip Stocks

• Well Known, reliable companies• Small but regular dividends• Steady growth• GE, Microsoft, Walmart • Medium risk / Medium Return• Good for long term investors who

don’t want to much risk

Growth Stocks

• Young, entrepreneurial companies• High Growth Potential• Example: Tech start-ups • High Risk / High Return• Good for risk takers who could

afford a loss.

Mutual Funds

• A collection of investments managed by professionals.• Traded just like a stock.

• Pros:• Easy way to diversify• Professionally managed

• Cons:• Fees

Types of Funds

Bonds (aka income)

Balanced (bonds and stocks)

Equity (stocks)

International

Index (low fees) e.g S&P 500 /DJIA

Retirement Accounts

IRA’s• An investing plan with special tax

benefits401K Plan• A tax differed retirement plan set-

up by your employer.• Employer may match contributions