Investing

1. Investing

2. What is Investing? • Planning to use your money for the future • Making Money with Money • Risk is going to be involved • Higher Risk=Higher Rate of Return (or Loss)! • Return is the amount of money earned on an investment • RATE OF RETURN • Return (profit) / Investment • $100 (earned) / $1000 (investment) = 10%

3. How to Make Investment Choices? • Consider: • Financial Situation • Risk Tolerance • Values • Goals • Diversification – spreading your money out over several different investments

4. Types of Stock • Common Stock • Voting share • No set dividend • Board of Directors (elected by shareholders) decide on dividends • No assets if company goes under (and after preferred stockholders) • Riskier than preferred stock (possibility of higher return) • Frequent price changes • Market Price of Common Stock is determined by the demand for the stock

5. Types of Stock • Preferred Stock • Non-voting share • Fixed dividend, unless company incurs loss • Receive assets if company goes under before common stockholders

6. Blue Chip Stocks • Large, well-established companies • History of steady sales and profits • Usually pay dividends • Dividends usually grow • Values do no change rapidly • AT&T • Ford • IBM • GE

7. Growth Stocks • Small/young companies • New products • Little to no dividends • Profits used to purchase new equipment or research • Expected to experience rapid growth • Higher risk

8. Making Money from Stocks • Dividends - Distribution of a portion of a company's earnings, decided by the board of directors to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share. • Selling • Capital gain • Capital loss

9. Remember.. • The only way to earn money is to sell the stock. • You are never guaranteed your investment back.. • No matter which stock you buy! • Stocks are better used as a long-term investment compared to a short term investment • Investigate a company before buying

10. Yield • Annual Dividend of an Investment/current market value (current price) • Yield = a % • Increase in current yield is healthy

11. Earnings Per Share • Corporations after tax earnings / the number of outstanding shares (shares people own) • Measure the amount of profit for each share • Increase is a good thing

12. PE Ratio • Price Earnings Ratio • Price of one stock/corporations earnings per share • Low PE is a good sign • Low PE indicates the company has a lot of earnings when compared to the price of the stock

13. Net Change • Difference between the close of a stock on one day and that of the opening on a new day. • You would want a high change because more people are demanding the stock.

14. Regulation • Security and Exchange Commission (SEC) – enforces laws concerning the trading of stocks and bonds and licenses stockholders • SEC prevents insider trading – trading stock based on info not available to the general public

15. Total Return • Original Investment = Shares * Cost • Dividend * Number of Shares * Years = Current Return • (Selling Price Per Share – Purchase Price Per Share)*Number of Shares Held = Capital Gain • Current Return + Capital Gain = Total Return$ • Total Return/Original Investment = Rate of Return /$6375 = 34%

16. Bonds • Bondholder is a creditor of the company issuing the bond • Bonds essentially a loan to a company or government for repayment in the future

17. Retirement • 401K plans through employer • Employee matching program • Portable • Choose investment plan • Can be tax deferred • Pension plans (not so common any more) • Offered by Corporations as a benefit for lengthy employment • Designed to provide retirement income • Usually a portion of what the employee was making before retirement

18. Mutual Funds • Group of investments owned by many investors • Investors buy shares of the fund • Fund pools money to buy a variety of stocks and investments • Diversify your investment • Benefit of services of investment professionals who make decisions for you • Value changes with the value of stocks or bonds

19. Finding Investment Information • Wall Street Journal • Info on businesses, banks, government, foreign nations • Quotes stocks (ticker symbol), bonds, mutual funds • Forbes, Fortune, Kiplinger’s Personal Finance Magazine, Money • Internet

20. Advice • Invest through large, well established stock brokerage firms • Ask name, address, info of any company asking you to invest—check them out! • Get investment offer in writing • Avoid a hard sales pitch to buy NOW • “inside” information is dishonest and fraudulent • Immediate payment is NOT due (5 days)

21. Now What? • How does diversification help limit risk? • How does age and financial situation affect how you make investment decisions?

22. David wanted to become a chef after high school and own a restaurant. His parents cannot afford to send him to school. Currently, he is working in the kitchen of a local restaurant. How can David turn his job into a career and achieve both his short- and long-term goals?

23. Amy has saved $2000 toward a new car. It will cost her $4000 for a down payment on the purchase of her new car. What do you recommend Amy do between now and the next 24 months to meet the financial needs of her new car?

24. Jane's grandmother have her $500 for high school graduation. She would like to use the money in September for college. What do you recommend she doe with the cash to meet her financial needs in college?

25. Van has $1200 in a savings account that is earning 2.5% compound interest. Van has designated this money for a down payment on condo that he will purchase in 5 years. What do you recommend Van do with this cash?

26. Last year, Monique bought 300 shares of AT&T for $31.25 per share. Today, AT&T is valued at $35.20 per share. Monique wants to use the money from this return to start her own business. Should she sell today or hold on to the shares for another 6 months? Why or why not?

27. Tula is 24 years old. She is investing in X Corporation as part of her retirement plan. Should she purchase a bond or stock? Why?

28. Keyshawn has just graduated from college and accepted a job. The company offers a retirement plan. Keyshawn is nervous about his ability to pay for his apartment and his car and cannot decide whether to invest in the plan now, or to wait until his financial situation improves. What advise would you give him?

29. The county in which Marie Kilmore lives is selling bonds to finance a new storm sewer system. Marie knows that the storm sewers need replacing because her street was flooded last week. At the same time, she knows that her country is not very stable financially. She is not sure that the bonds are a good investment. She should buy the bond to help improver her community and her own personally living conditions, or should she invest her money in another way that has a better chance of helping her meet her financial goals? Explain

30. Discuss ways in which securities issued by state and local governments are similar to corporate bonds. Also explain why the government or a company decides to issue bonds.