Investing
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Investing

investing

. . . just the basics


Investing

investing

. . . just the basics


Investing

Types of Investments

Types of Investments

Investment Risk Pyramid

Types of Investments

Investment Companies

. . . just the basics

Investment Taxation

Investment Objectives

Investment Markets


Investing

Types of Investments

DERIVATIVE

EQUITY

DEBT

INVESTMENT

EQUITY

DEBT

DERIVATIVE

Stock Certificate

Bond Certificate

Contract Between Two Parties

Ownership

Debt

Return based on Movement of Financial Assets or Instruments

1,000,000 Shares

Borrowed Money

10%

100,000 Shares

Paid – through Interest

Used for Speculation

Profit in Corporation

Interest – Guaranteed

A Form of ‘Bets’ or ‘Hedges’

Paid – through Dividends

OBLIGATION to pay

Small Fluctuations can Produce Large Changes in Contract Value

Dividends – not Guaranteed

Bankrupt if Cannot Pay

NO OBLIGATION to pay

Less Risk

Much Larger Risk

Can Retain Earnings

Lower than average Returns

Much Higher Returns – or –

More Risk

Risk of Losing Large Amounts

Higher than average Returns

Forex

buyer

Strike Price

right

contract

date

exercise

Hedges

expiration

Arbitrage

Options

obligation

price

exchange

trade

Puts / Calls

Credit Swaps


Investing

Win!

When investments go down!

INVESTMENT

EQUITY

DEBT

DERIVATIVE

SELLING SHORT

LONG BOND

PUT OPTION

Remember ‘put down’

Investor borrows stock

Down economy

Buyer purchases the RIGHT to sell a security for a fixed price

Profits decrease

And immediately sells for cash

Businesses do not borrow

Buyer pays a fee

Later purchases stock

Interest rates decrease to encourage borrowing

Repays stock debt

Seller OBLIGATED to sell at the fixed price

Profits if stock decreased in value

Higher interest on existing bonds make value increase

Small Fluctuations can Produce Large Changes in Contract Value

Loses if stock increased in value

Much Larger Risk

$ 100

Bad economy

Much Higher Returns – or –

Profits decrease

Risk of Losing Large Amounts

Borrowing decreases

Video example:

Interest rates decrease

http://www.investopedia.com/video/play/put-option#axzz1aU4TAfi6

$ 60

Lower new bond interest

Purchases stock $60

Existing bond values increase

Keeps a $40 profit

Jesse L. Livermore made $100 million short selling in the Great Stock Market Crash of 1929


Investing

Types of Investments

Investment Risk Pyramid

Investment Risk Pyramid

Investment Risk Pyramid

Investment Companies

. . . just the basics

Investment Taxation

Investment Objectives

Investment Markets


Investing

Investment Risk Pyramid

High Risk

The Risk Scale (Pyramid)

Low Risk


Investing

Investment Risk Pyramid

High Risk

Cash and Cash Equivalents

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

CDs, Notes, U.S. Treasury Bills

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Money Market / Bank Account

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Government Bonds / Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

High Income Bonds / Debt

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Large / Small Cap Stock

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Equity Mutual Funds

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Real Estate

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Investing

Investing

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Speculating

Investing

Speculating

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Options

Speculating

Investing

Options

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

$30

Option to purchase at face value

? - $5,000

If BYU goes to the 2012 Sugar Bowl

0

If BYU does not go

Low Risk


Investing

Investment Risk Pyramid

High Risk

Hedge Funds

Options

Speculating

Investing

Hedge Funds

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Arbitrage

Hedge Funds

Options

Speculating

Investing

Arbitrage

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Futures

Futures

Investment Risk Pyramid

High Risk

Futures

Arbitrage

Hedge Funds

Options

Speculating

Investing

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Currency Trading

Futures

Arbitrage

Hedge Funds

Options

Speculating

Investing

Currency Trading

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Investing

Investment Risk Pyramid

High Risk

Credit Swaps

Currency Trading

Futures

Arbitrage

Hedge Funds

Options

DERIVATIVES

A contract that derives value from the movement of a financial asset

Speculating

Investing

Credit Swaps

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


Real estate flipping highly leveraged

Real Estate ‘Flipping’Highly Leveraged

Investment Risk Pyramid

High Risk

Real Estate Flipping

Credit Swaps

Currency Trading

Futures

Arbitrage

Hedge Funds

Options

Speculating

Investing

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Low Risk


12 annual return

12% Annual Return

Real Estate

Equity Mutual Funds

Large/Small Cap Stocks

High Income Bonds/Debt

Government Bonds/Debt

Money Market / Bank Accounts

CDs, Notes, U.S. Treasury Bills

Cash and Cash Equivalents

Investment Risk Pyramid

High Risk

Real Estate Flipping

Credit Swaps

Currency Trading

Futures

Arbitrage

Hedge Funds

Options

Speculating

Investing

Past 10 Years

Rising Dividends Each Quarter

Same Management Team

Millionaire Next Door

Low Risk


Investing

Types of Investments

Investment Risk Pyramid

Investment Companies

Investment Companies

Investment Companies

. . . just the basics

Investment Taxation

Investment Objectives

Investment Markets


Investing

Investment Companies

INVESTOR

$$$

Mutual Fund Shares

-Commission -No Load

Reinvested

MUTUAL FUND INC (Investment Company)

Components of Return

Dividends

Dividends

Dividend Income

Interest

Capital Gain Income

Cap Gains (losses)

Realized

Stock

Expenses

Unrealized

- Google

Management Fee

- Microsoft

Custodial Fee

- Enron

- AT&T

- Fly by Night Inc.

- Exxon


Investing

Investment Companies

INVESTOR

$$$

Mutual Fund Shares

-Commission -No Load

Reinvested

INDEX FUND INC (Investment Company)

MUTUAL FUND INC (Investment Company)

Components of Return

Dividends

Dividends

Dividend Income

Interest

Capital Gain Income

Cap Gains (losses)

Realized

Stock

Expenses

Unrealized

- Google

Management Fee

- Microsoft

Custodial Fee

- Enron

- AT&T

- Fly by Night Inc.

- Exxon


Investing

Investment Companies

INVESTOR

$$$

Mutual Fund Shares

-Commission -No Load

Reinvested

INDEX FUND INC (Investment Company)

variable annuity (Investment Company)

Components of Return

Dividends

Dividends

Dividend Income

Interest

Capital Gain Income

Cap Gains (losses)

Realized

Stock

Expenses

Unrealized

- Google

Management Fee

- Microsoft

Custodial Fee

- Enron

- AT&T

- Fly by Night Inc.

- Exxon


Investing

Types of Investments

Investment Risk Pyramid

Investment Taxation

Investment Companies

. . . just the basics

Investment Taxation

Investment Taxation

Investment Objectives

Investment Markets


Investing

Investment Taxation

  • Four Federal Taxes

  • Income Tax

    • Ordinary income tax

    • Capital gains tax

  • F.I.C.A. (Social Security Tax)

  • Gift Tax

  • Estate Tax

Ordinary Tax Rates

Capital Gain Tax Rates

10%

5%

0%

2008 - 2011

15%

28%

33%

15%

35%


Investing

Investment Taxation

  • Four Federal Taxes

  • Income Tax

    • Ordinary income tax

    • Capital gains tax

  • F.I.C.A. (Social Security Tax)

  • Gift Tax

  • Estate Tax

Ordinary Income

Capital Gain Income

Social Security Tax – 16%

Capital Gains Tax – 15%

Federal Income Tax – 25%

State Income Tax – 7%

TAX PAID EACH YEAR

TAX PAID ONLY WHEN GAIN IS REALIZED


Investing

Types of Investments

Investment Risk Pyramid

Investment Objectives

Investment Companies

. . . just the basics

Investment Taxation

Investment Objectives

Investment Objectives

Investment Markets


Investing

Investment Objectives

Investment Objectives

Government Bond Funds

Different types of investments whose performance reflects theinvestors’ goals based on their time horizon, risk tolerance and personal wishes

Municipal Bond Funds

Sector Funds (Health Care)

Large Cap Growth Funds

Emerging Market Funds

International Stock Funds

Real Estate Funds (R.E.I.T.s)

Commodity Funds

Hedge Funds


Investing

Types of Investments

Investment Risk Pyramid

Investment Markets

Investment Companies

. . . just the basics

Investment Taxation

Investment Objectives

Investment Markets

Investment Markets


Investing

Investment Markets

INVESTMENT MARKETS

EXCHANGE

Auction Market – ‘Open Outcry’

Physical Location – Floor Traders – 18 Trading Posts

New York Stock Exchange – NYSE – ‘The Big Board’

American Stock Exchange – AMEX

Tokyo Stock Exchange

London Stock Exchange

OVER-THE-COUNTER

Any securities trade not handled on an exchange

The largest securities market

Computer communications network – Links securities dealers

Negotiated market – Broker dealers and ‘market makers’

Most all initial public offerings completed ‘over the counter’

NASDAQ – National Association of Securities Dealers

Automated Quotations

Three levels of reporting and tracking trades


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