Unit 5 Investing

1. Unit 5Investing

2. Unit 5 Vocabulary • Buying on Margin • Collectables • Common Stock • Cyclical Stocks • Defensive Stocks • Direct Investing • Discount Bond • Discount Broker • Diversification • Dividend Reinvestment • Agency Bonds • Annual Report • Annuity • Auction Market • Back-end Load • Bear Market • Blue Chip Stocks • Bond • Bull Market • Buy and Hold

3. Unit 5 Vocabulary • Gemstones • General Obligation Bonds • Government Bonds • Growth Stocks • Income Stocks • Investor • Investor Services • IRA • Keogh Plan • Market Value • Dividends • Dollar-cost Averaging • Earnings per Share • Family of Funds • Financial Advisor • Financial Pages • Floorbrokers • Front-end Load • Full-service Broker • Futures Contract

4. Unit 5 Vocabulary • Revenue Bond • Risk • Securities Exchange • Selling Short • SEP Plan • Speculator • Stock • Treasury Securities (T-Bills) • 401(k) plan • 403(b) plan • Municipal Bonds • Mutual Funds • No-Load • Option • Over-the-counter Market • Par Value • Penny Stocks • Precious Metals • Preferred Stocks • Prospectus

5. Unit 5 Essential Question • What are the benefits and risks of investing and the vehicles used to invest with?

8. Essential Question 1Investing • Why should you invest?

9. Reasons for Investing • To supplement earned income • To make a profit • To minimize tax burdens now and in the future • To provide income for retirement • To stay ahead of inflation: A rise in the general level of prices

10. Essential Question 2Investing • What is risk?

11. Risk • Risk: A measure of the uncertainty about the outcome. • The greater the risk, the greater the return • Can be minimized through diversification: spreading risk among many types of investments

12. Risk • Types of risk: • Short-term vs Long-term: Short-term investments are generally less risky than long-term investments. • Inflation: During inflationary times, there is the risk that inflation will exceed interest or the rate of return. • Interest Rate: Fixed rate investments are not affected by changes in inflation rates.

13. Risk • Types of risk: • Political: Government actions such as increased taxes and regulations on targeted industries can make some investments less attractive. • Market: Affects many kinds of investments at one time. Business declines, sudden national or world events, or interest rate fluctuations will affect the market.

14. Risk • Types of risk: • Company or Industry: Factors or events that affect only one company or industry may adversely affect investments in that company or industry.

15. Essential Question 3Investing • What are some wise investment practices?

16. Wise Investment Practices • Define Your Financial Goals – Must be specific and measurable. • Go Slowly– Provide adequate time to obtain and analyze the needed information to make a sound choice. DON’T go too slowly!

17. Wise Investment Practices • Follow Through • Don’t put off, act now • Don’t keep to much money in the “put-and-take accounts. Take advantage of the higher interest rate investments.

18. Wise Investment Practices • Keep Good Records– Unless you know where you have been and where you are, it is difficult to plan where you are going.

19. Wise Investment Practices • Seek Good Investment Advice– It is wise to seek competent advice from a trained professional before making any investment decision.

20. Wise Investment Practices • Keep Investment Knowledge Current– It is your responsibility to know when to ask questions and to make any final decisions. • Knowledge is Power!

21. Essential Question 4Investing • Where can you find information on financial investing?

22. Sources of Financial Information • Financial Pages: Includes financial data and other investment information. TIMES

23. Sources of Financial Information • Investor Services: Provides extensive financial data to clients.

24. Sources of Financial Information • Financial Magazines: Business Week, Forbes, Money, Fortune, Kiplinger’s Finance News

25. Sources of Financial Information • Full-service Brokers: Provides analysis and opinions based on their judgment.

26. Sources of Financial Information • Discount Brokers: Provides little to no financial advice. Good for the well informed, do it yourselfer.

27. Sources of Financial Information • Financial Advisors: Trained to give intelligent overall investment advice based on your goals, age, net worth, occupation, investment experience, lifestyle, etc.

28. Sources of Financial Information • Annual Reports: A corporation provides the information needed to evaluate that corporation as an investment prospect.

29. Essential Question 5Investing • What are the various investment options?

30. Investment Options • Stock: Represents ownership in a corporation. • A shareof stock is a unit of ownership. • The owner of stock is called a stockholder. Dividends are paid to the stockholder from corporate profits.

31. Investment Options • Bonds: Represents debt obligations of corporations or governments. • The principal, amount borrowed, must be repaid on the maturity date.

32. Investment Options • Discount Bond: Bond issued by the U.S. government. • Series EE: Bond purchased for half its face value and generally matures in ten years. • Series HH: May be purchased only in exchange for Series EE and pays interest every six months.

33. Investment Options • Treasury Securities (T-bills): Issued by the U.S. government starting at $10,000 increments of $5000 for three, six and twelve month maturities.

34. Investment Options • Mutual Funds: Pools the money of many investors and buys a large selection of securities that meet the fund’s stated investment goals. • Real Estate: Provides protection against inflation as well as providing tax benefits to the owner.

35. Investment Options • Retirement Plans • Annuity: A contract or agreement written by an insurance company to provide regular income. It pays while you are alive. • IRA (Individual Retirement Account): A tax sheltered retirement plan. • May contribute a maximum of $3000 per year • Contributions are tax deductible • Interest earned is tax deferred

36. Investment Options • Retirement Plans • Keogh Plans: Retirement plan available to self employed individuals. • SEP (Simplified Employee Pension) Plans: Allows small employers to provide retirement plans to their employees.

37. Investment Options • Retirement Plans • 401(k) Plans: An IRA type retirement plan provided to employees of companies that operate for a profit. • 403(b) Plans: An IRA type retirement plan provided to employees of government or not-for-profit businesses.

38. Essential Question 6Investing • What are the various investment strategies?

39. Investment Strategies • Short-Term Techniques: Buy and sell stocks for quick profits. Commonly referred to as “playing the market.” • These people are referred to as speculators. • Buying on Margin: Borrowing money from your broker to buy stock. • Selling Short: Borrowing stock from your broker to sell.

40. Investment Strategies • Long-Term Techniques: History has shown that long term stock investments have beat savings and CDs consistently. • These people are referred to as investors.

41. Investment Strategies • Long-Term Techniques: • Buy and Hold: Buy stock and hold it for a long period of time in anticipation that the value will eventually increase as well as collecting dividends. • Dollar-Cost averaging: Systematic purchase of the same stock at regular intervals.

42. Investment Strategies • Long-Term Techniques: • Direct Investment : Stock is purchased directly from the corporation at a greatly reduced or eliminated broker fee. • Dividend Reinvestment: Dividends are rolled over and used to purchase additional shares of stock.

43. Essential Question 7Investing • What are stocks and how are they bought and sold?

44. The Securities Market • Bull Market: Characterized by rising stock prices and a general feeling of investor optimism. • Bear Market: Characterized by falling stock prices and a general feeling of investor pessimism.

45. The Securities Market • Securities Exchange: A marketplace where brokers who represent investors meet to buy and sell securities. • Auction Market: Stock trading happens auction style. Stock is sold to the highest bidder and bought from the lowest offer. • Floorbrokers: Members of the exchange do their actual business on the floor of the exchange.

46. The Securities Market • Over-the-Counter (OTC) Market: Network of brokers who buy and sell securities that are not listed on a securities exchange.

47. Types of Stock • Common Stock: The owner of the stock shares directly in the success or failure of the business. • Owner has voting rights. One share equals one vote. • Paysdividends: A portion of the corporate profits paid to each shareholder.

48. Types of Stock • Preferred Stock: Dividends are fixed, regardless of corporate profits. • Owner has no voting rights. • Less risky than common stock. • If the company fails, the preferred stock holders get paid first.

49. Stock Classifications • Income Stocks: Chosen to supplement income in the form of dividends. • Growth Stocks: Companies reinvest their profits into the company so it can grow and expand. They pay little to no dividends.

50. Stock Classifications • Penny Stocks: Stocks that sell for less than $5 per share. • Blue Chip Stocks: Stocks of large, well-established, and usually profitable businesses.