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Investing for Dummies

A quick introduction to investing by CEO Sarah Deming September 8, 2009. Investing for Dummies. Why Invest, Anyway?. Why do the rich stay rich? Why can people retire before being eligible for social security?

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Investing for Dummies

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  1. A quick introduction to investing by CEO Sarah Deming September 8, 2009 Investing for Dummies

  2. Why Invest, Anyway? • Why do the rich stay rich? Why can people retire before being eligible for social security? • In the long-run, the Dow (DJIA) has significantly out performed the risk-free investment (the t-bill)

  3. Different Type of Investments • Equities/Common Stock • Core vs. Growth • Fixed Income • Definition • Different Ways to Invest • Alternative Investments • Options, Real Estate, Hedge Funds, ect.

  4. Equities (Stocks) • The WIC portfolio is made up largely of Core (60%) and Growth (25%) Equities

  5. Core Stocks • “Big and boring is the key to core investments” • Stable, large, blue-chip companies • Large Market Capitalization (<10 Billion) • Consistent, large ROE (return on equity) • Steady Rate of Growth • Dividends • Examples in our portfolio: • Boeing, General Electric, Proctor & Gamble

  6. Growth Stocks • “Glamour Stock” • Shares in a company whose earnings are expected to grow at an above-average rate relative to the market • More risky, greater chance of a higher return • Commonly Technology Companies • No Dividends • Examples: • Hansen, Amgen, Applied Materials, Nintendo

  7. Indexes • Dow Jones Industrial Average • “When the market is up today” • Price-weighted average of 30 large, significant stocks • Most watched index • Standard & Poor’s 500 • Leading indicator of U.S. equities • Reflects the risk/return characteristics of the large cap universe

  8. Fixed Income • A type of investment that yields a regular (fixed) return—primarily, bonds. • Bonds are debt (stocks are equity) • Bonds are used to diversify portfolios • Issuers of bonds are generally corporations and governments • Government bonds are the safest investments and are used as “risk-free” instruments

  9. Investing in Fixed Income • Bond funds is a common way to invest in fixed income. Bond funds are primarily invested in a variety of bonds and other debt instruments with a specific focus. • Examples of bond funds WIC holds are Vanguard Total Market Fund and PIMCO Low Duration. • Corporate Bonds • Municipal Bonds (tax advantages) • U.S. Treasury Bills

  10. Alternative Investments • Often require large amount of investment • Risky but have a high return • Limited Regulations, complex, low liquidity • Examples Include: • Private Equity • Real Estate • Infrastructure • Commodities • Hedge Funds

  11. Financial Ratios • Financial ratios are a good quick way of understanding a company’s basic finances without examining the Income Statement, Balance Sheet, and Cash Flow Statements. • Profitability: • Return on Assets (ROA) • Return on Equities (ROE) • Debt: • Debt Ratio

  12. Financial Ratios (Continued) • Valuation Ratios: • Price to Book • Price/Earnings (P/E) • Dividend Yield

  13. Learn More? Resources! • Since there are no investing classes at Whitman, the best way to learn about investing is to educate yourself (and come to WIC meetings) • Resources: • Investopedia • Wall Street Journal • Yahoo and Google Finance • Morningstar

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