Stock Markets

1. Stock Markets Being an educated investor will enable you to become financially sound.

2. Page 164 • Keep it simple, stupid! • Never invest purely for tax savings • Never invest using Borrowed money • Buy on margin, short selling • Diversification means to spread around • Diversification lowers risk

3. Page 166 As the risk goes up, so does the potential return When discussing investments, liquidity is availability (how fast it can become cash) As there is more liquidity, there is typically less return.

4. Type of investments C.D. is a Certificate of Deposit Money market mutual funds are low risk money market accounts with check writing privileges. These are great for emergency funds

5. Types of Investments: Safe = low returns • Money Markets • Bundle of short-term financial instruments • CD: Certificate of Deposit • Savings account • Low risk • Great for Emergency fund

6. Single Stocks Single stock carries an extremely high degree of risk When you buy stock, you are buying a small piece of ownership in the company Your return comes as the company increases in value or pays you, its owner, some of the profits (dividends)

7. Stock Markets in America (page 174) • New York Stock Exchange (NYSE) • Oldest (1792) & largest • Day of a trader • NASDAQ (National Association of Securities Dealers Automated Quotations) • Electronic stock market • The American Stock Exchange (Amex) • Now NYSE Amex Equities • Acquired by NYSE Euronext in 2009

8. Other Markets • CME (Chicago Mercantile Exchange) • Commodity exchange • Trades futures & options on commodities • Commodities • Good that is the same regardless who produces it • Pork bellies, corn, wheat

9. Blue Chip Stock • Common stock of large, stable corporations • Solid records of dividend payment • Benefits: • Buy and hold • Brand companies • Good for children’s portfolios

10. Dow Jones Industrial Average • One of main index • Used as indicator for entire market • How many companies in Dow Jones? • 30 Blue Chip Stocks • Which 30? • 30 Blue Chip Stocks • Alter depending on economy

11. S&P 500 • Standard & Poor’s index • 500 large-cap common stocks • Started 1957 • Committee choices companies based on: • Market Size • Liquidity • Industry Grouping • More

12. Classification of Stocks • Growth Stocks • Show greater than average gains for the industry • Income Stocks • Earnings or dividends are high; provide steady income • Lets look at some information

13. Bull Market • Lengthy period when stock prices rise • 1983-1997: Longest bull market

14. Bear Market • Lengthy period when stock prices fall • Decline of at least 15% in stock averages • Why are they known as Bull and Bear?

15. Brokers you can use Full service Online • Edward Jones • Raymond James • UBS • Morgan Stanley • Wells Fargo • Merrill Lynch • Fidelity ($7.95) • E*Trade ($9.99) • TD Ameritrade ($9.99) • Charles Schwab ($8.95) • TradeKing ($4.95) • Scotttrade ($7.00)

16. Bonds – Page 168 • A bond is a debt instrument by which the company owes you money • Your return is the fluctuation in price and the interest rate paid. Few individuals do well with sing bond purchases • Government bonds low interest with low risk • Corporate bonds rated based on risk • AAA = good • D = in default

17. Mutual Funds Investors pool their money to invest Portfolio managers manage the pool (group of money) or fund Your return comes as the value of the fund is increased Mutual funds are good long term investments

18. Mutual Funds Buy a share = own many stocks with common interest Load = commission Remember mutual fund = • an investment program funded by shareholders that trades in diversified holdings and is professionally managed. • Most ticker symbols end in X Example – finance.yahoo.com

19. Definition of 'Capital Gain' (How you make money!) An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price. 2. Profit that results when the price of a security held by a mutual fundrises above its purchase price and the security is sold (realized gain). http://www.investopedia.com/terms/c/capitalgain.asp#ixzz1rk8cxPg8

20. Qualified Plans • Tax-favored investment • IRA, open to all with earned income • Not a type of investment but tax treatment of investments • Roth IRA pay taxes now and never again • Lots of ways to take money out Tax Free

21. Annuities = bad investment Savings accounts with an insurance company Fixed annuities are at a low interest rate of around 5%, aren’t really fixed, and are a bad investment Variable annuities are mutual funds sheltered by the annuity covering, thereby allowing the mutual fund to grow tax-deferred

22. Real Estate You should have lots of cash before using real estate as an investment Least liquid consumer investment Lots of benefits and negatives to be aware of!

23. Horrible Investments • Gold, stays with inflation • Commodities and Futures: Agricultural or mining products • Can earn a lot but volatile and need expertise • Day Trading • What we will do in the game, can do some but not with all money • Viaticals: The purchase of a life insurance policy for a certain percentage of the policy's face value

24. Steps to Buy Investments • Raise CapitalNever invest more than you are able to lose 1 2 3 4 5 Create an investment planAre you aggressive, for income / growth, etc. • Find a company you want to invest inComplete research Find a broker you likeWhat services do you need, fees, etc. Start to tradeSet limits, greed is good until you lose it all

25. General Rule of Thumb • Shareholders should BUY LOW, SELL HIGH • BUT, when can you make money when the market is heading south? • Dollar Cost Averaging • Day Trade

26. Be diversified!

27. Work • Look up 3 stocks • At least 2 should be competitors • Look up a Mutual Fund • Find information about retirement accounts