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investing

investing. . . . just the basics. investing. . . . just the basics. Types of Investments. Types of Investments. Investment Risk Pyramid. Types of Investments. Investment Companies. . . . just the basics. Investment Taxation. Investment Objectives. Investment Markets.

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investing

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  1. investing . . . just the basics
  2. investing . . . just the basics
  3. Types of Investments Types of Investments Investment Risk Pyramid Types of Investments Investment Companies . . . just the basics Investment Taxation Investment Objectives Investment Markets
  4. Types of Investments DERIVATIVE EQUITY DEBT INVESTMENT EQUITY DEBT DERIVATIVE Stock Certificate Bond Certificate Contract Between Two Parties Ownership Debt Return based on Movement of Financial Assets or Instruments 1,000,000 Shares Borrowed Money 10% 100,000 Shares Paid – through Interest Used for Speculation Profit in Corporation Interest – Guaranteed A Form of ‘Bets’ or ‘Hedges’ Paid – through Dividends OBLIGATION to pay Small Fluctuations can Produce Large Changes in Contract Value Dividends – not Guaranteed Bankrupt if Cannot Pay NO OBLIGATION to pay Less Risk Much Larger Risk Can Retain Earnings Lower than average Returns Much Higher Returns – or – More Risk Risk of Losing Large Amounts Higher than average Returns Forex buyer Strike Price right contract date exercise Hedges expiration Arbitrage Options obligation price exchange trade Puts / Calls Credit Swaps
  5. Win! When investments go down! INVESTMENT EQUITY DEBT DERIVATIVE SELLING SHORT LONG BOND PUT OPTION Remember ‘put down’ Investor borrows stock Down economy Buyer purchases the RIGHT to sell a security for a fixed price Profits decrease And immediately sells for cash Businesses do not borrow Buyer pays a fee Later purchases stock Interest rates decrease to encourage borrowing Repays stock debt Seller OBLIGATED to sell at the fixed price Profits if stock decreased in value Higher interest on existing bonds make value increase Small Fluctuations can Produce Large Changes in Contract Value Loses if stock increased in value Much Larger Risk $ 100 Bad economy Much Higher Returns – or – Profits decrease Risk of Losing Large Amounts Borrowing decreases Video example: Interest rates decrease http://www.investopedia.com/video/play/put-option#axzz1aU4TAfi6 $ 60 Lower new bond interest Purchases stock $60 Existing bond values increase Keeps a $40 profit Jesse L. Livermore made $100 million short selling in the Great Stock Market Crash of 1929
  6. Types of Investments Investment Risk Pyramid Investment Risk Pyramid Investment Risk Pyramid Investment Companies . . . just the basics Investment Taxation Investment Objectives Investment Markets
  7. Investment Risk Pyramid High Risk The Risk Scale (Pyramid) Low Risk
  8. Investment Risk Pyramid High Risk Cash and Cash Equivalents Cash and Cash Equivalents Low Risk
  9. Investment Risk Pyramid High Risk CDs, Notes, U.S. Treasury Bills CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  10. Investment Risk Pyramid High Risk Money Market / Bank Account Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  11. Investment Risk Pyramid High Risk Government Bonds / Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  12. Investment Risk Pyramid High Risk High Income Bonds / Debt High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  13. Investment Risk Pyramid High Risk Large / Small Cap Stock Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  14. Investment Risk Pyramid High Risk Equity Mutual Funds Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  15. Investment Risk Pyramid High Risk Real Estate Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  16. Investment Risk Pyramid High Risk Investing Investing Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  17. Investment Risk Pyramid High Risk Speculating Investing Speculating Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  18. Investment Risk Pyramid High Risk Options Speculating Investing Options Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents $30 Option to purchase at face value ? - $5,000 If BYU goes to the 2012 Sugar Bowl 0 If BYU does not go Low Risk
  19. Investment Risk Pyramid High Risk Hedge Funds Options Speculating Investing Hedge Funds Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  20. Investment Risk Pyramid High Risk Arbitrage Hedge Funds Options Speculating Investing Arbitrage Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk

  21. Futures

    Investment Risk Pyramid High Risk Futures Arbitrage Hedge Funds Options Speculating Investing Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  22. Investment Risk Pyramid High Risk Currency Trading Futures Arbitrage Hedge Funds Options Speculating Investing Currency Trading Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk
  23. Investment Risk Pyramid High Risk Credit Swaps Currency Trading Futures Arbitrage Hedge Funds Options DERIVATIVES A contract that derives value from the movement of a financial asset Speculating Investing Credit Swaps Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk

  24. Real Estate ‘Flipping’Highly Leveraged

    Investment Risk Pyramid High Risk Real Estate Flipping Credit Swaps Currency Trading Futures Arbitrage Hedge Funds Options Speculating Investing Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Low Risk

  25. 12% Annual Return

    Real Estate Equity Mutual Funds Large/Small Cap Stocks High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents Investment Risk Pyramid High Risk Real Estate Flipping Credit Swaps Currency Trading Futures Arbitrage Hedge Funds Options Speculating Investing Past 10 Years Rising Dividends Each Quarter Same Management Team Millionaire Next Door Low Risk
  26. Types of Investments Investment Risk Pyramid Investment Companies Investment Companies Investment Companies . . . just the basics Investment Taxation Investment Objectives Investment Markets
  27. Investment Companies INVESTOR $$$ Mutual Fund Shares -Commission -No Load Reinvested MUTUAL FUND INC (Investment Company) Components of Return Dividends Dividends Dividend Income Interest Capital Gain Income Cap Gains (losses) Realized Stock Expenses Unrealized - Google Management Fee - Microsoft Custodial Fee - Enron - AT&T - Fly by Night Inc. - Exxon
  28. Investment Companies INVESTOR $$$ Mutual Fund Shares -Commission -No Load Reinvested INDEX FUND INC (Investment Company) MUTUAL FUND INC (Investment Company) Components of Return Dividends Dividends Dividend Income Interest Capital Gain Income Cap Gains (losses) Realized Stock Expenses Unrealized - Google Management Fee - Microsoft Custodial Fee - Enron - AT&T - Fly by Night Inc. - Exxon
  29. Investment Companies INVESTOR $$$ Mutual Fund Shares -Commission -No Load Reinvested INDEX FUND INC (Investment Company) variable annuity (Investment Company) Components of Return Dividends Dividends Dividend Income Interest Capital Gain Income Cap Gains (losses) Realized Stock Expenses Unrealized - Google Management Fee - Microsoft Custodial Fee - Enron - AT&T - Fly by Night Inc. - Exxon
  30. Types of Investments Investment Risk Pyramid Investment Taxation Investment Companies . . . just the basics Investment Taxation Investment Taxation Investment Objectives Investment Markets
  31. Investment Taxation Four Federal Taxes Income Tax Ordinary income tax Capital gains tax F.I.C.A. (Social Security Tax) Gift Tax Estate Tax Ordinary Tax Rates Capital Gain Tax Rates 10% 5% 0% 2008 - 2011 15% 28% 33% 15% 35%
  32. Investment Taxation Four Federal Taxes Income Tax Ordinary income tax Capital gains tax F.I.C.A. (Social Security Tax) Gift Tax Estate Tax Ordinary Income Capital Gain Income Social Security Tax – 16% Capital Gains Tax – 15% Federal Income Tax – 25% State Income Tax – 7% TAX PAID EACH YEAR TAX PAID ONLY WHEN GAIN IS REALIZED
  33. Types of Investments Investment Risk Pyramid Investment Objectives Investment Companies . . . just the basics Investment Taxation Investment Objectives Investment Objectives Investment Markets
  34. Investment Objectives Investment Objectives Government Bond Funds Different types of investments whose performance reflects theinvestors’ goals based on their time horizon, risk tolerance and personal wishes Municipal Bond Funds Sector Funds (Health Care) Large Cap Growth Funds Emerging Market Funds International Stock Funds Real Estate Funds (R.E.I.T.s) Commodity Funds Hedge Funds
  35. Types of Investments Investment Risk Pyramid Investment Markets Investment Companies . . . just the basics Investment Taxation Investment Objectives Investment Markets Investment Markets
  36. Investment Markets INVESTMENT MARKETS EXCHANGE Auction Market – ‘Open Outcry’ Physical Location – Floor Traders – 18 Trading Posts New York Stock Exchange – NYSE – ‘The Big Board’ American Stock Exchange – AMEX Tokyo Stock Exchange London Stock Exchange OVER-THE-COUNTER Any securities trade not handled on an exchange The largest securities market Computer communications network – Links securities dealers Negotiated market – Broker dealers and ‘market makers’ Most all initial public offerings completed ‘over the counter’ NASDAQ – National Association of Securities Dealers Automated Quotations Three levels of reporting and tracking trades
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