Investment student1


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  • Bond is like an IOU that pays interest (called a debt-related security because you are borrowing money)
  • Interest earned on municipal bonds is tax free at federal, state, and local level Savings Bonds are usually lower value investments ($50 to $10,000) Treasury Bonds are more expensive investments and are exempt from state/local taxes ONLY U.S. gov’t bonds – when federal gov’t needs money they issue bonds (they are always safe b/c gov’t can just print more money or raise taxes if needed to pay back the loan at maturity) CONSIDERED RISK FREE BUT ALSO HAVE LOW YIELDS (low interest rates) Municipal Bonds – raise funds for public projects like building of schools, bridges, & highways Considered a little more riskier but are attractive b/c interest earned is exempt from federal income taxes & state taxes Corporate – higher risk but higher possible return on bond because of bankruptcy threat Risk of buying corporate bond varies according to financial health of the corporation
  • Stocks are shares of ownership, not debt security like a bond IN THIS CASE, WHEN CORP. ISSUE SHARES OF STOCKS THEY ARE NOT BORROWING MONEY, RATHER THEY ARE SELLING OWNERSHIP RIGHTS People sometimes invest in non-dividend paying stocks so they expect the price of the stock to rise as the company grows, therefore making their shares worth more over time RISKIER INVESTMENT THAN BONDS USUALLY BUT DEPENDS ON THE CORPORATIONS! Dividends are in the form of a dollar amount for each share owned (the more shares the higher the dividend)
  • Stock or bond (debt-related) mutual funds where there is a collection of securities chosen & managed by a group of professional fund managers Shares are bought & sold just like a stock Diversification – investing in wide variety of financial assets so as to reduce the risk of poor performance of one Each mutual fund has different goals – stock funds for growth & income from dividends & value appreciation while bond funds offer lower risks & money market funds are short term with higher interest rates than savings accounts but no FDIC insurance Compare funds to market index like S&P or Dow, if not getting same returns then may be not managed well enough
  • What determines a stock's price? There are many factors that play into a stock's price. Overall, though, the price is determined by investors' perceptions of what the stock is worth. Some of the biggest factors include:     How big and successful the company is (especially its earnings)     Recent company news     The state of the U.S. and world economies     Whether there is a bull or bear market     World events, whether good or bad
  • Investment student1

    1. 1. INVESTMENT <ul><li>Now…The good stuff! </li></ul><ul><li>But first…. </li></ul><ul><li>Why do people invest? </li></ul><ul><li>In what ways will you invest now or in your future? </li></ul><ul><li>What are the risks of investing? </li></ul>
    2. 2. <ul><li>People need to understand investment before they put there $$$ out there </li></ul><ul><li>Risk vs. Return </li></ul><ul><ul><li>Risk – situation in which the outcome is not certain, but probabilities can be estimated </li></ul></ul><ul><ul><li>= higher the risk, the higher possible return </li></ul></ul><ul><li>Other Considerations </li></ul><ul><ul><li>Investor objectives </li></ul></ul>Investment
    3. 3. Basic Investments <ul><li>Statement Savings Account </li></ul><ul><ul><li>deposit money in a financial institution and receive a monthly statement detailing your transactions </li></ul></ul><ul><ul><li>Easy access to funds </li></ul></ul><ul><ul><li>Low risk so low interest rates! </li></ul></ul><ul><li>Money Market Deposit Accounts </li></ul><ul><ul><li>Account with minimum balance requirement, but allows immediate access to money & relatively high interest rates </li></ul></ul>
    4. 4. What are my investment options? <ul><li>Some of the other major investment options are </li></ul><ul><ul><li>Bonds </li></ul></ul><ul><ul><li>CDs </li></ul></ul><ul><ul><li>Stocks </li></ul></ul><ul><ul><li>Mutual Funds </li></ul></ul>
    5. 5. <ul><li>Bonds – certificate issued in exchange for borrowed money </li></ul><ul><li>Characteristics: </li></ul><ul><ul><li>Interest – borrower promises to pay this on top of repayment (cost of borrowing!) </li></ul></ul><ul><ul><li>Maturity – the life of the bond (“stated period of time”) </li></ul></ul><ul><ul><li>Principal – amount of borrowed money (original amount is repaid at maturity) </li></ul></ul>Investment Option #1: Bonds
    6. 6. <ul><li>Most bonds are rated on the financial health of the issuer, the ability to make future interest and principal payments, and the issuer’s past credit history. </li></ul><ul><li>Bond ratings , ranging from D (lowest) to AAA (highest), indicate the quality of the bond. </li></ul><ul><li>AAA to BBB are usually higher quality bonds while Junk Bonds (like BB to D) are the riskiest! </li></ul>Which bonds are best??? = Bond Ratings
    7. 7. <ul><li>Government Bonds </li></ul><ul><ul><li>Issued by the Federal Government </li></ul></ul><ul><ul><li>Savings bonds - they are purchased at half the face value and increase every 6 months until face value is reached </li></ul></ul><ul><ul><li>Treasury Bonds – certificates issued by U.S. Treasury in exchange for at least $1,000 and mature in 10+ years </li></ul></ul><ul><ul><li>All of these investments are the safest & most attractive because have no risk of default </li></ul></ul><ul><ul><li>These bonds usually have low interest rates = low returns </li></ul></ul><ul><li>Corporate Bonds </li></ul><ul><ul><li>Issued by corporations and are usually used for long-term investment </li></ul></ul><ul><ul><li>This is a riskier bond to invest in = businesses go bankrupt! </li></ul></ul><ul><li>Municipal Bonds </li></ul><ul><ul><li>Issued by state and local governments and are regarded as a safe, tax-exempt investment. </li></ul></ul>Types of Bonds
    8. 8. Investment Option #2: CDs <ul><li>Certificates of Deposit (CDs) </li></ul><ul><li>These are time deposits (you have to deposit the $ for a certain period of time) that you make to financial institutions (banks!) </li></ul><ul><ul><li>You choose the length of maturity, and usually receive a good interest rate for your CD (a higher rate than a normal savings account) </li></ul></ul><ul><ul><li>The longer the maturity, the higher the interest rate! </li></ul></ul><ul><li>Payment at Maturity = Original Amount + Interest </li></ul>
    9. 9. Investment Option #3: Stocks <ul><li>What are they? </li></ul><ul><ul><li>Stocks represent shares of ownership in a corporation (stocks are also called SECURITIES!) </li></ul></ul><ul><li>Who issues stock? </li></ul><ul><ul><li>Corporations </li></ul></ul><ul><li>Why issue stock? </li></ul><ul><ul><li>To raise funds to help out the business </li></ul></ul><ul><li>How do investors make money by buying stocks? </li></ul><ul><ul><li>Two ways of making money </li></ul></ul><ul><ul><ul><li>1. Capital gains – buy low, sell high (stock value appreciates) </li></ul></ul></ul><ul><ul><ul><li>2. Dividends - payments of corporate profits to its stockholders </li></ul></ul></ul>
    10. 10. Investment Option #4: Mutual Funds <ul><li>A mutual fund is just a SPECIAL stock </li></ul><ul><li>A mutual fund company pools the money of investors in order to buy stocks, bonds, or other investments in a variety of OTHER COMPANIES </li></ul><ul><li>Advantages of Mutual Funds </li></ul><ul><ul><li>Your holdings become more diverse </li></ul></ul><ul><ul><li>Your money is more safe because losses in the value of one stock can be made up by gains in the value of another stock </li></ul></ul>
    11. 11. The Stock Market
    12. 12. What determines a stock’s price? <ul><li>Investors’ perceptions of what a stock is worth influenced by: </li></ul><ul><ul><li>Company earnings </li></ul></ul><ul><ul><li>Recent company news </li></ul></ul><ul><ul><li>State of the U.S. and world economy </li></ul></ul><ul><ul><li>Trends or World Events </li></ul></ul>
    13. 13. Organized Stock Exchanges – places where buyers & sellers meet to trade stocks <ul><li>The New York Stock Exchange (NYSE) </li></ul><ul><ul><li>Physical Exchange </li></ul></ul><ul><ul><li>lists the shares of more than 3,000 large companies, and has 1,400 seats or memberships with access to the trading floor. </li></ul></ul><ul><ul><li>Oldest, largest, most prestigious Stock Exchange </li></ul></ul><ul><ul><li>Located on Wall Street in NYC </li></ul></ul>
    14. 14. Organized Stock Exchanges <ul><li>Global Stock Exchanges </li></ul><ul><ul><li>Include exchanges throughout the world (major cities) </li></ul></ul><ul><li>Regional Stock Exchanges </li></ul><ul><ul><li>Focused around major cities </li></ul></ul><ul><ul><li>Usually smaller corporations or new ones </li></ul></ul><ul><ul><li>Ex.’s: Philadelphia, Boston, Chicago </li></ul></ul>
    15. 15. The Virtual Stock Market <ul><li>Virtual Exchanges (electronic or web-based stock markets) </li></ul><ul><ul><li>NASDAQ – </li></ul></ul><ul><ul><ul><li>largest American virtual exchange where trading is done through network of computers </li></ul></ul></ul><ul><ul><ul><li>Lists stock prices for about 3,800 companies </li></ul></ul></ul><ul><ul><ul><li>Many of these companies are high-tech </li></ul></ul></ul>
    16. 17. What is day trading? <ul><li>Buying and selling a particular stock in the same day! </li></ul>
    17. 18. What’s insider trading? <ul><li>Occurs when an insider (person who owns a large portion of company or is employed there) trades on NON-PUBLIC information </li></ul><ul><li>This gives them an advantage over normal investors!!! </li></ul>
    18. 19. Stock Market Terms <ul><li>Who are stockholders/shareholders ? </li></ul><ul><ul><li>People who have invested in a corporation by purchasing stocks </li></ul></ul><ul><li>Who are stockbrokers ? </li></ul><ul><ul><li>Buying & selling middle man that helps to conduct securities transactions </li></ul></ul>
    19. 20. How do we measure the performance of the entire market? Use a market index? <ul><li>Dow-Jones Industrial Average (DJIA) </li></ul><ul><ul><li>Publishes the average closing price for 30 representative stocks </li></ul></ul><ul><ul><li>Look at % change to see how market is doing </li></ul></ul><ul><ul><li>Uses stocks ONLY on NYSE </li></ul></ul><ul><li>Standard & Poor’s 500 (S&P 500) </li></ul><ul><ul><li>Stock performance index that uses price changes of 500 representative stocks as indicator of market performance </li></ul></ul><ul><li>Nasdaq Composite Index </li></ul><ul><ul><ul><li>Stock performance index that uses price changes of 4,000 representative stocks from Nasdaq ONLY </li></ul></ul></ul>
    20. 21. <ul><li>BULL MARKET </li></ul><ul><ul><li>Market in which prices are rising </li></ul></ul><ul><li>BEAR MARKET </li></ul><ul><ul><li>Market in which prices are falling </li></ul></ul>BULL MARKET VS. BEAR MARKET!!! What type of market do we have now? How do you know?