Investing Basics

1. Investing Basics Stratetiges of Investing – Mr. Yates

2. Investing what? Why? • The main question— • What do I want to accomplish through my investments? • You may think the reason is – to make money • Is that really the answer?

3. Decisions… • Safety – minimal risk to the original investment (the principal) • Income – purchasing investments that provide regular payments • Growth – (long term) increases in market value • Speculation – looking for potential for higher than avg returns (which means higher risk)

4. Setting Personal Goals • Properly planning goals is the first step to achieving them • First, determine how much you can afford to invest • Beginners should: • Set aside emergency funds first • Pay off debts (credit cards, student loans, etc)

5. Investing in what? • Investing money involves putting that money into some form of "security" -- a fancy word for anything that is "secured" by other assets. • Stocks, bonds, mutual funds, and certificates of deposit are all types of securities.

6. Setting Personal Goals • Properly planning goals is the first step to achieving them • First, determine how much you can afford to invest • Beginners should: • Set aside emergency funds first • Pay off debts (credit cards, student loans, etc)

7. Answers to these determine it all • Why do I need or want to invest? • How much can I afford to invest? • What am I trying to accomplish? • How much do I want to invest? • How much return to I need? • How much risk am I willing to take? • How will I know if I have accomplished my goals?

8. Beginner tips • Set aside emergency money first • Find a trained/licensed adviser • Check credentials • Ask about fees and charges (in some cases it may take up to a year to recover fees) • Avoid “hot tips,” “fast-growing” etc. • After you plan has proven successful – stick with it

9. Risk – no guts, no glory • Investors who seek higher returns face more risk than investors who seek modest returns • The more you want to make, the more risk you must accept • If higher levels of risk make you feel uncomfortable, select your investments accordingly • However, investors have the right to know the risks, along with other rights…

10. The Investor Bill of Rights – You have the right to: • Ask for and receive info about the firm, individuals and work history of the brokers • Receive info about the risks, obligations, costs • Receive info consistent with your needs/obj. • Receive copies of all forms & agreements

11. Investing – how? • With online banking and brokerage services, it's easier than ever to set up automatic monthly transfers between your checking account and a savings account or investing vehicle of your choice. • You'll be surprised how easy it is to live on a little less money each month -- in fact, you probably won't even notice the difference.

12. Now I’m ready – I think. • You've whipped your finances into shape. You've set concrete financial goals. • Now you're ready to learn how to start making your investments. • If you use a mutual fund, the process is pretty easy: Contact the fund company and ask to open an account. • But with stocks, things get a little trickier…

13. Stocks • Stocks trade on exchanges. • In the U.S., the major exchanges are the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Nasdaq Stock Market. • While there are differences in the way the various exchanges handle trades, buying and selling shares on any of them involves a similar process.

14. Exchanges • Exchanges bring together buyers and sellers. • The price that buyers are willing to pay for shares is called the "bid," while the price sellers are willing to accept to sell their shares is the "ask" price. • The difference between these two prices is called the "spread." • Usually, the spread goes into the pockets of the exchange professionals who handle trades.

15. Spread • The amount of spread will vary, depending on the volume of shares traded. • For heavily traded stocks, competition will make spreads quite small. • Thinly traded stocks may carry a large spread, in order to compensate exchange professionals for the risk they take.

16. Prices and Orders • Investors can set their own bid or ask prices, too, by placing orders to sell or buy only at a specific price. (These are called "limit" orders.) • Exchange professionals keep a close eye on these "open" orders, executing them when conditions are met, and using them to gauge demand for the stock.

17. Brokerages • Brokerage accounts are the most common way to buy stocks. • You can either use one of the many way-too-expensive full-service (or full-price) brokers, or execute your trades through a discount broker.

18. Drips! • Dividend reinvestment plans (DRPs) and direct investment plans (DIPs) • Not yet ready to open a brokerage account? • These plans offer another, steadier way to buy stock. • Lovingly known by many investors as Drips, they allow shareholders to purchase stock directly from a company, with only minimal costs or commissions. • Not every company offers such plans, but they're great for people who can only invest small amounts of money at regular intervals.