stock markets
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Stock Markets. Being an educated investor will enable you to become financially sound. Answer questions on page 22. Page 23. Keep it simple, stupid! Never invest purely for tax savings Never invest using Borrowed money Buy on margin, short selling Diversification means to spread around - PowerPoint PPT PresentationTRANSCRIPT
Stock Markets
Being an educated investor will enable you to become financially sound.
Page 164
Keep it simple, stupid! Never invest purely for tax savings Never invest using Borrowed money
Buy on margin, short selling Diversification means to spread around Diversification lowers risk
Page 166
As the risk goes up, so does the potential return
When discussing investments, liquidity is availability (how fast it can become cash)
As there is more liquidity, there is typically less return.
Type of investments
Types of Investments: Safe = low returns
Money MarketsBundle of short-term financial instruments
CD: Certificate of DepositSavings account
Low risk Great for Emergency fund
Single Stocks
Single stock carries an extremely high degree of risk
When you buy stock, you are buying a small piece of ownership in the company
Your return comes as the company increases in value or pays you, its owner, some of the profits (dividends)
Stock Markets in America (page 174) New York Stock Exchange (NYSE)
Oldest (1792) & largestDay of a trader
NASDAQ (National Association of Securities Dealers Automated Quotations)Electronic stock market
The American Stock Exchange (Amex)Now NYSE Amex Equities Acquired by NYSE Euronext in 2009
Other Markets CME (Chicago Mercantile Exchange)
Commodity exchangeTrades futures & options on commodities
CommoditiesGood that is the same regardless who
produces it Pork bellies, corn, wheat
Blue Chip Stock
Common stock of large, stable corporations
Solid records of dividend payment Benefits:
Buy and holdBrand companiesGood for children’s portfolios
Dow Jones Industrial Average
One of main indexUsed as indicator for entire market
How many companies in Dow Jones?30 Blue Chip Stocks
Which 30?30 Blue Chip StocksAlter depending on economy
S&P 500
Standard & Poor’s index 500 large-cap common stocks
Started 1957Committee choices companies based on:
Market Size Liquidity Industry Grouping More
Classification of Stocks Growth Stocks
Show greater than average gains for the industry
Income StocksEarnings or dividends are high; provide
steady income
Lets look at some information
Bull Market
Lengthy period when stock prices rise 1983-1997: Longest bull market
Bear Market
Lengthy period when stock prices fall Decline of at least 15% in stock averages Why are they known as Bull and Bear?
FULL SERVICE• Edward Jones• Raymond James• UBS• Morgan Stanley• Wells Fargo• Merrill Lynch
• Fidelity ($7.95)• E*Trade ($9.99)• TD Ameritrade ($9.99)• Charles Schwab
($8.95)• TradeKing ($4.95)• Scotttrade ($7.00)
ONLINE
Brokers you can use
Bonds – Page 168 A bond is a debt instrument by which the
company owes you money Your return is the fluctuation in price and
the interest rate paid. Few individuals do well with sing bond purchasesGovernment bonds low interest with low riskCorporate bonds rated based on risk
AAA = good D = in default
Mutual Funds
Investors pool their money to invest Portfolio managers manage the pool
(group of money) or fund Your return comes as the value of the
fund is increased Mutual funds are good long term
investments
Mutual Funds•Buy a share = own many stocks with common interest•Load = commission•Remember mutual fund =
• an investment program funded by shareholders that trades in diversified holdings and is professionally managed.
• Most ticker symbols end in X•Example – finance.yahoo.com
Definition of 'Capital Gain'1. An increase in the value of a capital asset
(investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.
2. Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain).
http://www.investopedia.com/terms/c/capitalgain.asp#ixzz1rk8cxPg8
(How you make money!)
Qualified Plans
Tax-favored investment IRA, open to all with earned income
Not a type of investment but tax treatment of investments
Roth IRA pay taxes now and never againLots of ways to take money out Tax Free
Annuities = bad investment Savings accounts with an insurance
company Fixed annuities are at a low interest rate
of around 5%, aren’t really fixed, and are a bad investment
Variable annuities are mutual funds sheltered by the annuity covering, thereby allowing the mutual fund to grow tax-deferred
Real Estate
You should have lots of cash before using real estate as an investment
Least liquid consumer investment Lots of benefits and negatives to be aware
of!
Horrible Investments Gold, stays with inflation Commodities and Futures: Agricultural or
mining productsCan earn a lot but volatile and need expertise
Day TradingWhat we will do in the game, can do some but
not with all money Viaticals: The purchase of a life insurance
policy for a certain percentage of the policy's face value
Steps to Buy Investments
1234
Create an investment planAre you aggressive, for income / growth, etc.
Find a company you want to invest inComplete research
Find a broker you likeWhat services do you need, fees, etc.
5 Start to tradeSet limits, greed is good until you lose it all
Raise CapitalNever invest more than you are able to lose
General Rule of Thumb
Shareholders should BUY LOW, SELL HIGH
BUT, when can you make money when the market is heading south?Dollar Cost AveragingDay Trade
Be diversified!
Work
Look up 3 stocksAt least 2 should be competitors
Look up a Mutual Fund Find information about retirement
accounts