The Stock Market Economics. Vocabulary Investment: act of redirecting resources from being consumed today so they may create benefits in the future. Mutual.

The Stock Market

Economics

VocabularyInvestment: act of redirecting resources from being consumed today so they may create benefits in the future.Mutual Funds: fund that pools the savings of many individuals and invests this $ in a variety of stocks or bonds.Diversification: spreading out investments to reduce risk.Portfolio: a collection of financial assets.

Return: the $ investors receive above the amount invested.Stockbroker: a person who links buyers and sellers of stocks.Stock Exchange: a market for buying & selling stock. Bull Market: A steady rise in the stock market over a period of time.Bear Market: A steady decrease in the stock market over a period of time.

InvestmentInvestment provides economic growth & contributes to the nations wealth. When people deposit $ into a bank, the bank can then lend that $ to people to start businesses, etc…“spend $ to make $”

Sharing RiskAs a saver you might not want to invest your life savings in one company. Instead you may wish to spread your money around in various businesses to reduce your chance of losing your investment. This is called diversification.

Risk & ReturnCert. Of deposits (CD’s) are a low risk investment because they are insured by the federal govt. If you want to invest in a new video game system that is being developed you may double your profit. If it fails you may lose your entire investment. This is a risky investment.The video game system offers a higher return, therefore it is a riskier investment.Depending on your goals you may chose to invest in risky or conservative investments.

Buying StockCorporations can raise funds by issuing stock, which represents ownership in the corporation. Issued in portions known as shares. Benefits of buying Stock:

Dividends: pay out part of their profits to their shareholders 4 times a year (quarterly)Capital Gains: you may sell your share at a higher price than you purchased at.

Common Stock v. Preferred Stock

Common Stock: Voting owners of the company. Usually receive one vote per share. They elect board of directors of the company. Preferred Stock: Non-voting shareholders. Receive dividends before common stock holders.

How are stocks traded?You would contact a stockbroker.Stockbrokers work for brokerage firms that specialize in trading stocks.Stockbrokers charge a fee on each stock transaction.Sometimes stockbrokers will buy stock at a lower price & sell them at a slightly higher price to make a profit from the difference.

Stock Exchange

Stock is bought & sold on the Stock Exchange.Major U.S. stock exchanges are the New York Stock Exchange (NYSE) & the NASDAQ-AMEX.A growing # of people are also buying & selling stocks on the internet.

NYSE

NYSEThe countries largest & most powerful exchange.Began in 1792 as an informal, outdoor exchange under a buttonwood tree in NYC’s financial district.The NYSE now handles transactions for the largest & most established companies in the country. The largest/best known are referred to as blue-chip stocks.

68 Wall St. 1792

NASDAQ-AMEXThe American Stock Exchange used to be the 2nd largest.It lost business when people began to purchase stock over the internet. In 1998 it merged with the National Association of Securities Dealers’ Automated Quotation system (NASDAQ)They sell slightly riskier stocks with less established and smaller companies.Specialize in American high-tech & energy stock & global stocks.

Day tradingMost people who buy stock hold their investment for a period of time. Daytraders try to predict, minute-by-minute, price changes based on computer programs that tell a trader when to buy & sell. These people may make dozens of transactions per day. Often they can lose or make great deals of money. *many times go crazy* (off the record)

The Dow Jones Industrial Avg

The Dow has shown how certain stocks have traded every business day since 1896. It shows the average increase or decrease in stocks in specific categories such as industry, food, entertainment & technology.

S & P 500The Standard & Poor’s 500. Gives a broader picture of stock performance. Tracks the price change of 500 different stocks as a measure of overall stock markets performance. Most of the stocks reported are from the NYSE.

Bull v. Bear MarketBull:

Stock market rises steadily over a period of time.

Investors expect an increase in profits.

People are buying stocks.

Bear:Marker falls steadily over a period of time.

Investors expect a decrease in profits.

People are selling their stocks.