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Diversification of your Portfolio

Diversification of your Portfolio. Stock Lesson. Learning Target. I can explain why is it important to diversify your stock portfolio. Why Diversify?. Less risk of losing money when markets go down. Greater return on investment over time. Greater average rate of return over time.

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Diversification of your Portfolio

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  1. Diversification of your Portfolio Stock Lesson

  2. Learning Target • I can explain why is it important to diversify your stock portfolio.

  3. Why Diversify? • Less risk of losing money when markets go down. • Greater return on investment over time. • Greater average rate of return over time.

  4. Industry Terminology • Cyclical Stocks- Stocks whose performance tend to mirror the economy. • Example- Real Estate Company’s • Economy is up = Housing Market up • Economy is down = Housing Market Down

  5. Industry Terminology Cont’d • Industry • : A group of companies producing similar products or services. • Net Income: • Total earnings after all expenses and taxes have been paid. • Profit: • What remains after subtracting a company’s costs from its revenue. • Profit is a company’s reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay. • Revenue: • Revenue is the money collected for providing a product or service. • Sector: • A group of stocks, often in one industry. • The performance of any single stock in a sector can be measured against the performance of the group. Pharmaceutical companies, for example, are part of the health care sector.

  6. Lets look at an industry… • Retail • JC Penny • Dillard's • If you were deciding to buy stock in this industry where could you research these company’s? • What would you look for? • How would you decide which one to invest in?

  7. Cash Balance with SMG • Maintain a cash balance no greater than 25,000 • You earn a generous 5% on your cash balance • Do not use all or more than all of your cash balance • You pay 7% interest per day to borrow money if you are negative. • Do not have more than 30% of your portfolio invested in one stock.

  8. Stock Group Activity • Create a list using Excel of companies in several different industries that you would consider investing. • Compare each of these stocks with a similar company in the same industry. • How is that company doing compared to yours? Better or worse? Justify your answer in a Word Document, and provide reasons as to why you would invest in each of these stocks. • How diversified is your portfolio? Explain using examples.

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