Stock Market & Investing One way of planning for the future…

Stock Market Stock – A certificate of ownership in a corporation (AAPL, BAC, MCD, WMT) Stock exchange – a market for buying and selling stock (e.g. NYSE, Nasdaq, Nikkei, etc.) Stock broker – a person who links buyers and sellers of stock (e.g. – E*Trade, Schwab, etc.)

Stock Market Purpose to buying stock: Investing – Redirecting resources from being consumed today so that they may create benefits for the future. MAKING MONEY!!! Thinking back about creating a budget, why save or plan for the future?

Stock Market Positives: Potential for greater growth than just a savings account Historical track record of success You choose based upon your risk tolerance Negatives: There is no guaranteed rate of return Occurrences in the past when the stock markets have “crashed” Investors should research their potential stocks

Stock Market Generally, stocks are exchanged based upon supply and demand. The equilibrium point is the price that buyers and sellers agree upon. What happens to the price if there are more buyers than sellers? What about more sellers than buyers? How does news, natural disasters, etc., affect buyers/sellers?

Stock Market Buyers/sellers trade stocks based on a variety of information: Corporate profits Future expectations and productivity Political events, elections, and government regulations News (local to international) Speculation…

Stock “ticker”

McDonalds stock activity for the past five years McDonalds stock activity for the past five years. Does it look like a good investment?

McDonalds Corp as of Feb. 2017

MCD over 10 years

…and a couple stocks that didn’t start so great…

Facebook continued

…but grew well

…or no longer exists (BlackBerry)

Stock Market and Investing Dividends – a portion of corporate profits paid out to stockholders. Stock split – when the board of directors chooses to change the volume of stocks, such as doubling the number of shares, and the price is changed accordingly. Investors neither gain nor lose value when this occurs.

Stock Market and Investing For some people, individual stocks are too “risky” or volatile for their comfort. So they put their money in stock-related and other investments. Mutual fund – investment that pools the money of many individuals and invests in a variety of stocks, bonds and other financial assets. Investors are charged a fee for having professionals manage their money.

Mutual Funds Benefits Drawbacks Lessen the risk of investing in an individual stock Thousands of funds to choose from, including “sector” or industry specific Investments are managed on your behalf Customers are charged an annual fee known as the “expense ratio” for having the investment managed May not experience as great of gains as individual stocks Generally do not trade in “real time”

Exchange Traded Fund (ETF) ETF – an investment fund traded on stock exchanges, much like stocks; but it holds assets such as stocks, commodities, or bonds. It trades close to its net assets, and trades throughout the day. Gaining in popularity.

Exchange Traded Fund (ETF) Sometimes ETFs and Mutual Funds allow you to invest in foreign companies in a convenient way.

Bonds & Bond Funds Bond – A formal contract to repay borrowed money with interest at fixed intervals. (Examples: school bonds like WUSDs, U.S. savings bonds, etc.) Bond fund – An investment containing multiple bonds instead of the debt of just a single loan.

Bonds & Bond Funds Bonds are generally safe investments. They are directly related to interest rates, so they usually generate less profit than stocks and mutual funds. Also, minimize risk during bad economic times.

When a bond is issued, the price you pay is known as its "face value When a bond is issued, the price you pay is known as its "face value." Once you buy it, the issuer promises to pay you back on a particular day -- the "maturity date" -- at a predetermined rate of interest -- the "coupon." Say, for instance, you buy a bond with a $1,000 face value, a 5% coupon and a 10-year maturity. You would collect interest payments totaling $50 in each of those 10 years. When the decade was up, you'd get your $1,000 and walk away. How much do you think you pay for this bond?

Bond rates

Bonds and Bond Funds A key difference between stocks and bonds is that stocks make no promises about dividends or returns. When a bond is issued, however, the issuer guarantees to pay back your principal (the face value) plus interest. If you buy the bond and hold it to maturity, you know exactly how much you're going to get back (in most cases).

Bonds and Bond Funds This is why bonds are known as “fixed-income” investments.

Commodities Commodities – products that are the same no matter who produces them. Precious and semi-precious metals Petroleum (oil) Produce (oranges, etc.) Timber and many more….

Commodities Commodities are bought and sold in a variety of ways including: On exchanges (like the Chicago Mercantile Exchange, or CME) and through the purchase of “futures” At retail by consumers (going to a pawn shop or coin collector to buy silver coins or bullion).

Commodities Click the link to be directed to the Yahoo! Finance site on commodities: http://finance.yahoo.com/commodities

Commodities Why do you think people invest in commodities instead of stocks, mutual funds, or bonds? Some investors prefer to invest in something tangible and that has intrinsic value. These are products that have obvious value to societies.

Commodities Investors also buy metals (usually gold/silver) because they retain value outside of U.S. or domestic currency. In other words, if something catastrophic happens, then the metals could be sold in another country or in a different currency.

Commodities Metals (cont) Bullion – gold or silver in mass or in the form of bars or ingots (small volumes like ounces or grams) Numismatic value – collecting coins, etc., because of value beyond just the bullion, such as historical value

Numismatic vs bullion value: 1889 Morgan Dollar