Learning, Earning, and Investing Investment Analysis

Learning, Earning, and Investing Investment Analysis PowerPoint PPT Presentation

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. Funding for this workshop is provided by: National Council on Economic Education US Dept of Education University of Illinois ExtensionThe Moody's Foundation. Instructors. Dr. Angela LyonsDirector, UIUC-Center for Economic EducationUniversity of Illinois Urbana-ChampaignJennifer HuntConsumer and Family Economics EducatorUniversity of Illinois Extension.

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Learning, Earning, and Investing Investment Analysis

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1. Learning, Earning, and Investing Investment Analysis


3. Instructors Dr. Angela Lyons Director, UIUC-Center for Economic Education University of Illinois Urbana-Champaign Jennifer Hunt Consumer and Family Economics Educator University of Illinois Extension

4. You will receive… Curricula with lessons and activities to use in the classroom 6 CPDUs Certification to reproduce and replicate workshop materials Network of colleagues to share experiences Resources available at U of I Extension

6. Increasing Consumer Responsibilities Movement towards the privatization of social security. Over 92% of pensions today are defined contribution plans, not defined benefit plans.

7. Financial World Has Become More Complex The number of financial services offered to consumers has increased. There has also been an increase in the number of financial products that are offered. Credit-scoring technology has improved.

8. People Are Involved in the Financial Markets Millions of small investors have increased their net worth by participating in the stock and bond markets. Millions of other investors depend on income from owning stocks and bonds.

9. Importance of Financial Education Many Americans, especially young adults, lack the basic knowledge and skills needed to make informed financial decisions and manage their investments effectively.

10. It’s Hard to Learn What You Are Not Taught Financial education is a growing national priority. Stock market simulations and games are very popular. But young people can’t learn financial skills unless they are taught explicitly.

11. Several studies of financial education programs, especially those with specific objectives such as increasing savings or decreasing debt, have succeeded in improving the financial behaviors of young people and other consumers.

12. Where Do You Find Data? The Federal Reserve Board http://www.federalreserve.gov/ Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore. 2003. “Recent Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances.” Federal Reserve Bulletin.

13. Learning, Earning and Investing An Overview 23 lessons High school and middle school Complete lesson plans Web site (http://lei.ncee.net) Accompanies stock market simulations or games Linked to standards: NCEE, NCTM, Jump$tart Field tested and reviewed

14. Table of Contents Why Save? Investors and Investments Invest in Yourself What Is a Stock? Reading the Financial Pages: In Print and Online What Is a Bond? What Are Mutual Funds? How to Buy and Sell Stocks and Bonds

15. What Is a Stock Market? The Language of Financial Markets Financial Institutions in the U.S. Economy

16. Building Wealth Over the Long Term Researching Companies Credit: Your Best Friend or Your Worst Enemy? Why Don’t People Save? What We’ve Learned

17. How Financial Institutions Help Businesses Grow How Are Stock Prices Determined? The Role of Government in Financial Markets The Stock Market and the Economy: Can You Forecast the Future? Lessons from History: Stock Market Crashes Investing Internationally: Currency Value Changes Investing Involves Decision Making

18. Lessons Description Key concepts Objectives Time required Materials Procedure Visuals Activities Closure Assessment (multiple-choice and essay)

19. Key Features of the LEI Web Site About the Materials: Table of Contents Sample Lessons FAQs Order Information Resources: Interactives Related Web Links Related Lessons Financial Calculators Glossary Visuals on PowerPoint

23. Interactives Compound Interest Calculator Illustrates graphically the dramatic effect that compounding can have on investments over time Word Search Features a word search activity to introduce key financial terms Chessboard of Financial Life Illustrates the power of compounding interest

24. Reading the Financial Pages Focuses on several components presented on the financial pages of the newspaper NCEE’s Historical Stock Market Simulation Features a simulation in which students invest $10,000 using the Callan Periodic Table of Investment Returns

25. Quick Recap: LEI Session 1

26. Lesson 5

27. Stocks, Mutual Funds, and Bonds Financial pages provide basic information about stocks, mutual funds, and bonds. Financial pages also include general articles about the world of business and finance, government activities, and the activities of companies and industries. The purpose of this lesson is to teach students how to read financial tables for stocks, mutual funds, and bonds.

28. 3 Major US Stock Exchanges NYSE New York Stock Exchange (www.nyse.com) NASDAQ National Association of Securities Dealers Automated Quotation System (www.nasdaq.com) AMEX The American Stock Exchange (www.amex.com)

29. Activity 1: Reading a Stock Table (p.58) Key Terminology (Visual 1, p. 55) 52-Week High and Low Highest and lowest price of stock in the most recent 52-wk period. Stock (SYM) Name of the company and stock symbol. DIV Dividend - Annual payment per share to stockholders; usually paid quarterly.

30. YLD % Yield – The dividend calculated as a percentage of the closing price; the return on your invested money that comes from dividends. P/E ratio Price/Earnings Ratio – Stock price divided by the company’s annual earnings per share. VOL Volume – Shares traded the previous day.

31. CLOSE Closing price – Price of the stock at the end of the previous trading day. NET CHG Net change in the stock price from the close of the previous trading day.

32. Activity 2: Reading a Mutual Fund Table (p.61) Key terminology for each fund (Visual 2, p. 56) NAV Net asset value per share of the fund at the close of trading day; the value of a share of the fund; calculated by adding up the value of the stocks, bonds, and other assets in the fund, subtracting fund’s liabilities and dividing the result by the number of fund shares available. NET CHG Change in the NAV from the previous trading day. YTD % RET Year-to-date percentage change in the fund value. 3-YR % RET Percentage change in the fund value over three-year period.

33. Activity 3: Reading a Bond Table (p.63) Key Terminology (Visual 3, p. 57) CUR YLD Current Yield – Annual interest payment as a percentage of the current bond price. VOL Trading day volume ( # of bonds bought and sold). CLOSE Closing price of the bond. NET CHG Net change in bond price in dollars and cents.

34. Activity 4: Tracking Stocks Online (p.65-66) Students pick a stock and track it over several days or weeks. Students choose a Web site to find information about their stock.

39. Other Web sites http://www.usatoday.com http://www.bloomberg.com http://cbs.marketwatch.com http://money.cnn.com Subscriptions: http://online.wsj.com http://www.chicagotribune.com

40. Activity 5: Scavenger Hunt (p. 67-68)

41. Lesson 13

42. Visual 1: Thinking Economically About Researching Stocks Recognize that you cannot know it all. Select a few companies to research. Then follow their progress closely. Find a few good place to get stock information. Stop looking for new information when you think the benefits received from more information are less than the costs of additional research.

43. Visual 2: Surprises are Rare in the Securities Markets Many individuals spend a great deal of time and effort trying to find companies whose stock prices might increase faster than average for the market. Many financial institutions – brokerage companies, banks, life insurance companies – spend even more time and effort trying to identify companies whose stock prices might increase faster than average for the market. It is difficult to earn unusual gains in the stock market because most of the information about most companies is already known. People who earn above-average returns from their stock are usually surprised. But it is hard even for experienced investors to find surprises in the market.

44. Visual 3 An Example: LeBron James LeBron James joined the NBA out of high school. He is known for his ability to jump, pass, involve teammates and score. Some regard LeBron James as the Michael Jordan of the future. Could you make big money today by purchasing Nike stock, thinking that its value might be enhanced by the LeBron James connection?

45. Fundamental Analysis of Company Performance (Analysis of Financial Statements - “The Basics”) Factors to pay close attention to: Share Price Price/Earnings Ratio Annual Revenue or Sales Earnings Per Share

46. Activities 1 & 2 (p. 187-188) Comparing different methods for selecting stocks: Pick stocks at random Focus on companies you know or that seem popular Research a company’s financial information Seek expert advice

52. Technical Analysis of Company Performance Method that predicts a stock’s price movements and future market trends by studying charts of past market activity, which take into account the stock’s price and trading volume. Uses financial charts, tables, and ratios to predict future movements in a stock's price. Factors used to identify trading opportunities: 1) price, 2) volume, and 3) moving averages

54. Lesson 18

55. Visual 10: Laws of Supply and Demand Applied to Financial Markets The law of demand states (regarding stocks) that buyers choose to purchase more shares at lower prices and fewer shares at higher prices. The law of supply states (regarding stocks) that sellers choose to sell more shares at higher prices and fewer shares at lower prices. An equilibrium price exists when the quantity of shares demanded at that price equals the quantity of shares being supplied. Stock prices change as a result of changes in the supply and demand for shares of the stock in question. Shifts in supply and demand can establish new equilibrium prices.

56. Activity: Stock Price Simulation Game Students use knowledge of supply and demand to participate in a stock market simulation, which shows how the price of a share of stock is determined in a competitive market. Divide the class into buyers and sellers. Distribute BUY and SELL cards and score sheets. Assign one student to be keeper of the cards and another to record the transactions. Clear a space that will serve as the TRADING FLOOR. When the MARKET IS OPEN, buyers and sellers meet on the trading floor and try to agree to a price for one share of stock.

57. Buyers start the game with one BUY card on their score sheet. The goal is to buy at the lowest price they can. If the price they pay is equal to the price on their BUY card, buyer breaks even. If less than, there is a gain. If more than, there is a loss. Sellers start the game with one SELL card on their score sheet. The goal is to sell at the highest price they can. If the price they pay is equal to the price on their SELL card, seller breaks even. If more than, there is a gain. If less than, there is a loss. Students buy (or sell) as many shares of stock as they can in the allotted time. But the price of a transaction must always be in multiples of 5 ($5, $10, $15, $20 and so on).

58. As soon as a stock is bought (sold), students record the transaction on their score sheets. In addition, SELLER reports the negotiated price to the recorder. They then turn in their BUY (or SELL) card, receive a new card, and begin the negotiation process again. Students have 5 minutes to make transactions and then the TRADING FLOOR IS CLOSED. The game is played in three 5-minutes rounds. The goal is to make as much money as you can by the end of the game.

59. Lesson 23

60. Visual 1: Types of Investment Risk Risk of principal: The risk that some or all of the original deposit or investment may be lost. Market risk: The risk that the forces of supply and demand or unforeseen events may affect the value of an investment adversely. Interest-rate risk: The risk that interest rates will change. For example, an investor may hold a fixed-rate investment such as a bond. If the bond holder decides to sell the bond before maturity and market interest rates are higher than what the bond is earning, the price of the bond will be lower. Inflation risk: The risk that the return on an investment will not keep pace with inflation, and the saver’s purchasing power will fall.

61. Visual 2: Risk Pyramid

62. Visual 3: Elements of a Financial Plan Financial goals Net worth statement Income and expense record Insurance plan Saving and investment plan Focus of this lesson: Saving and investment plans

63. Visuals 4 & 6: Five-Step Decision Making Model (p. 315, 317)

64. Activity 2 (p. 319): Important Things to Know About Your Clients How much does the client have in savings? Is the client able to save each month without borrowing? Is the client responsible for people who are financially dependent? How much risk is the client willing to take in order to pursue a higher rate of return? How close is the client to retirement? Does the client expect his or her savings to generate current income? Is the client primarily hoping for growth? Would the client benefit from tax-deferred or tax-exempt investments?

65. Activities 3 & 4 (p. 320-322): Using the Decision-Making Model for Investing

66. Other LEI Lessons

67. Helpful Resources University of Illinois Extension Consumer and Family Economics www.ace.uiuc.edu/cfe National Council on Economic Education www.ncee.net Illinois Council on Economic Education www.econed-il.org

70. Summary and Questions

71. The Stock Market Game™ Program

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