Investment options

INVESTMENT OPTIONS

Risk and Reward

Stocks, Bonds, and Mutual Funds Stock- An investment in the ownership

of a corporation, usually represented by shares of the business.A companies profits are paid to it’s

stockholders in the form of dividends○ If a company’s value goes up, the value of the

stock will also go up (Vise Versa)When you sell your stock, you either earn a

capital gain or a capital loss

Stocks, Bonds, and Mutual Funds Basic Types of Stock

Common StockPreferred Stock

Stocks, Bonds, and Mutual Funds Common Stock

Receive dividends based on the companies earnings

Voting rights in the companies board of directors○ Each share you own, you have one stock

Owning this type of stock is a pro/con

Stocks, Bonds, and Mutual Funds Preferred Stock

Receive a fixed earning○ Receive the same dividends no matter what

kid of profit the company is/isn’t making.○ If the company does not make enough money,

the preferred stockholders get paid, however the common stockholders will not

○ No voting rights

Owning this type of stock is a pro/con

Stocks, Bonds, and Mutual Funds The Stock Markets- Stocks are bought

and sold on the stock market, also called the stock exchange.Anyone who has the money to buy a share

of stock can invest Three major stock markets

New York Stock ExchangeNASDAQAmerican Stock Exchange

Stocks, Bonds, and Mutual Funds New York Stock Exchange

In terms of dollars, it is the largest in the world and one of the oldest (1790s)

Very similar to what you see in the movies○ Around 1,366 brokers buying and selling

orders per day.About 3,000 US and foreign companies are

listed on the NYSE

Stocks, Bonds, and Mutual Funds NASDAQ

Founded in 1971Represents the largest US stock market in

terms of listingsApprox. 3,200 companies are listed and

trades more shares per day than any other US market.

NASDAQ= National Association of Securities Dealers Automated Quotations systems

All done online

Stocks, Bonds, and Mutual Funds American Stock Exchange

AMEXNot very big

○ Only handles 10% of trades

Stocks, Bonds, and Mutual Funds Before you invest in a stock you will

want to know the following….What has it been doing the past yearHas its price been going up or downWhat kind of dividends does it pay

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will

want to know52 Week High- in dollars and cents, the

highest price paid for one share during the past 52 weeks

52 Week Low- shows the lowest price paid for a share during the past 52 weeks.

Stock(Ticker)-The name of the company and its stock ticker symbol

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will

want to knowDiv- indicates, in dollars, the amount of

dividend forecasted for the following yearYield- % indicates the rate of return, which is

equal to the dividend per share of stock dividend by the closing price.

P/E- the price-earning ratio-the closing price per share of stock divided by the company’s net earning per share over the past year

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will want

to knowVol(00s) indicates the number of shares traded

on that particular day (in hundreds)High- each day’s intra-day high trading priceLow- each day’s intra-day low trading priceClose- shows the closing price-the price paid in

the final transaction of the dayNet Chg- the difference between today’s closing

price and the closing price on the previous day.

Stocks, Bonds, and Mutual Funds Evaluating Stocks

Blue-Chip Stocks- safe investments in the ownership of large respected corporations that have been around for many years

Dow Jones Industrial AverageDaily average of the 30 largest blue-chip

companies “The Dow” quotes on a number of points not

actual stock pricesEach point is equal to $1.00

Stocks, Bonds, and Mutual Funds Evaluating Stocks

Bull Market○ When investors are optimistic about the

marketBear Market

○ When investors are pessimistic about the market

Stocks, Bonds, and Mutual Funds Risk and Return

How much risk are you willing to take?○ The greater potential on your return, the

greater the riskAre you buying and selling stocks to make

money?○ If this is the case you may be wiling to take

more risk since you are not in it for the dividends

Stocks, Bonds, and Mutual Funds Higher Risk Investments

for the extreme dare devilsFuturesOptionsPenny Stocks

Stocks, Bonds, and Mutual Funds Futures

Contracts to buy or sell a commodity, stock, or other financial instrument for a set price, at a specific date in the future.○ Wheat, Corn, and/or Soybeans○ Livestock

A person investing in futures is basically betting that the price of a particular stock is going to rise or fall in the future.

Stocks, Bonds, and Mutual Funds Options

The owner of a option has the right- but not the obligation- to buy or sell a stock at a predetermined price, on or before a specific date.

Stocks, Bonds, and Mutual Funds Penny Stocks

Low-priced stocks, usually less then $1.00 per share.

Issued by start up companiesThey do not have reliable growth patterns. Not traded on major markets, so they are not

easy to findMore times than not they end up closing- if this

happens investors lose all their moneyIf the company is successful, investors could

end up with a lot of money.

Stocks, Bonds, and Mutual Funds Many different organizations sell bonds

to raise money Bonds can be purchased from

companies as well as towns, cities, states or the government.

Stocks, Bonds, and Mutual Funds Basic Types of Bonds

Bond- similar to an IOU○ Bonds are sold in order to borrow money for

things such as new buildings, starting up new businesses or creating new transportation systems.

○ When you buy a bond you are simply lending money to that organization.

○ The issuer of the bond (the lender) must pay you back, plus interest when the bond is mature- or reaches its due date.

Stocks, Bonds, and Mutual Funds Four types of Bonds

CorporateMunicipal SavingsT-Bill

Stocks, Bonds, and Mutual Funds Corporation Bond

Corporations sell corporation bondsMust be repaid in full at maturityThe bond owner receives regular, periodic

interest payments during the life of the bond

Stocks, Bonds, and Mutual Funds Municipal Bonds

Sold by cities, towns, countries, and other governments

Also must be repaid when they reach maturity

Interest on these bonds are tax-exempt○ You do not have to pay taxes on the income

you receive by these bonds

Stocks, Bonds, and Mutual Funds Savings Bonds

Sold by the US government Most popular is the Series EE Savings Bond

○ This type of bond is purchased at a financial institution for half of what it will be worth when it is mature.

Electronic EE Savings Bond○ Done via the Internet, purchased for face

value, but cannot be redeemed for 12 months.Another way to save money

Stocks, Bonds, and Mutual Funds T-Bills – Treasury Bills

Very similar to a savings bondLowest denomination for a T-Bill is $1,000.Maturity rates vary from a few years up to

30 years.

Stocks, Bonds, and Mutual Funds Risk and Return

People like Bonds because they are less risky than stocks

You are garneted your money back after the maturity date