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Investment Strategies

Learn about buy-and-hold techniques, stock splits, dollar-cost averaging, dividend reinvestment, reading stock listings, and stock indexes to optimize your investments for long-term growth and income.

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Investment Strategies

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  1. Investment Strategies Career & Financial Management Mrs. Wilson

  2. Long-Term Techniques • Statistics show that over a long time stock investments have consistently beaten rates for savings accounts, CDs, and other conservative options

  3. Buy and Hold • If you buy and hold, you can ride out the down times • When you are ready to sell years later, most likely you stock will have gained value • In addition, many stocks pay dividends, so you are earning income while you hold stock • A stock split can also add value over time • A stock split is an increase in the number of outstanding shares of a company’s stock

  4. Stock Split Example • If there were 1,000 shares outstanding with a market value of $60 then… • A 2:1 (two for one) split would result in 2,000 shares outstanding selling for $30 • You will notice that the total stock is still worth $60,000 • A stock split lowers the selling price, making the shares more affordable and encouraging investors to buy more • Price often rises!

  5. Dollar-Cost Averaging • Involves the systematic purchase of an equal dollar amount of the same stock at regular intervals • Usually results in a lower average cost per share • To calculate the average cost per share, divide the total amount invested by the total number of shares purchased, as shown in Figure 12-4 on page 345 in your book

  6. Dollar Cost Averaging Average share price = $8 (32/4) Your average cost per share = $7.41Total $ invested ($400) / total number of shares (54) Ending value = $540Last share price ($10) x number of shares (54)

  7. Reinvesting Dividends • You can save money by reinvesting dividends • This means using dividends previously earned on the stock to buy more shares • This avoids broker fees and other costs

  8. Reading the Stock Listings • To make wise decisions, you will need to track the progress of your chosen investments to see how they are performing • Keeping track of your stock portfolio (or holdings) can be as simple as checking the closing prices periodically • Refer to pages 346 and 347 in your textbook

  9. Stock Indexes • Stock index • Benchmark that investors use to judge the performance of their investments • Examples: • Dow Jones Industrial Average • Simply called “the Dow” • It is an average of the price movements of 30 major stocks listed on the NYSE • Provides a general overview of what stock prices are doing in the stock market as a whole • Standard & Poor's \ NASDAQ Composite • Other commonly used indexes

  10. Two-Day Assignment • Pages 354 & 355 • Questions 1, 5, 6 (tricky!), 8, and 9. • Each answer is worth 20 points • Counts as a test grade • Due tomorrow at the end of class

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