Investing

Stocks, bonds, index funds, RothIRA’s and 401(k)

question of the day

• What 1996 sequel of a sequel grossed$255 million less than the original?

• It featured a different actor for the maincharacter than the first two.

• Home Alone 3.

entrance ticket

• list 5 things you know about the stockmarket.

top 6 reasons high schoolstudents think you should

invest1. “make some money”2. retirement3. bragging rights4. tax breaks5. cash flow/real estate6. for children’s college

Source: http://www.goodfinancialcents.com/top-6-reasons-high-school-students-invest/comment-page-1/

the stock market: history

• first company to issue shares of stock after theMiddle Ages was the Dutch East IndiaCompany in 1606.

• allowed production of expensive goods (i.e.ships) to be completed by individuals and notjust governments.

the stock market: purpose

• a company sells stock (ownership) toraise capital (money).

• the stock market provides an arena forpeople to buy & sell stocks.

• A company sells thestock one time, therest is trading.

what does it mean to ownstock?

• owning stock means you have a stake inthe ownership of the company.

• you are entitled to a portion of theprofits.

• you have voting rights in companydecisions.

what is going on?

other investment options?

• investing = putting your moneysomewhere you have a chance to makemore money.

• varying degrees of risk.• why not just keep your cash in a

shoebox under your bed?

index funds

• What are they?– Mutual fund that tracks the entire stock

market

• Low risk– Risk is spread out across a huge number of

companies.

• Low maintenance fees = more moneyfor you.

bonds

• What is it?– An IOU from a company or government

that promises to pay you back what youpaid + interest after a certain amount oftime.

• Companies do it to raise money.• Stocks = equity, bond owners =

creditors.

401(k) and Roth IRA

• Retirement accounts• “Buckets” for other investments• Tax benefits• 401(k) = possible “free money” if your

employer matches.

today’s take away message

• the stock market is one place you caninvest your money.

• index funds are probably the best way toinvest in stocks.

• bonds are relatively secure places to putyour money.

• larger the risk, larger the return.

exit ticket: review quiz

1. To own stock means that…a.) You have an ownership claim.b.) You are entitled to some of the

company’s profits.c.) You are investing your money.d.) All of the above.

2. A company sells stock to…a.) Unload unprofitable assets.b.) Raise capital.c.) Only the executives of thecompany.d.) Consolidate ownership among afew people.

3. The New York Stock Exchange…a.) is an example of a large auctionfloor.b.) is a new phenomenon.c.) is where people go to open bankaccounts.d.) is actually located in New Jersey.

4. The higher the risk involved withthe investment, the _________the likely return.a.) higherb.) lowerc.) likely return is unaffected by risk.

5. Which type of investment has thelowest risk?a.) Junk bonds.b.) Stock.c.) Bonds.d.) Day trading.

6. Index funds are….a.) A mutual fund made up of stockfrom across the stock market.b.) A single group of stock from thesame company.c.) Very risky investments.d.) Only bought by very experiencedinvestors.

7. Bonds are…a.) A loan to a government, company,or municipality.b.) Relatively secure investments.c.) Repaid with interest.d.) All of the above.

8. 401(k)’s and Roth IRA’s differfrom stocks and bonds in that…a.) They are extremely risky.b.) They provide very high returns.c.) Are actually just “buckets” thathold other types of investments.d.) None of the above.