Risk and Reward Investment options

Stocks, Bonds, and Mutual Funds Stock- An investment in the ownership of a corporation, usually represented by shares of the business. A companies profits are paid to it’s stockholders in the form of dividends If a company’s value goes up, the value of the stock will also go up (Vise Versa) When you sell your stock, you either earn a capital gain or a capital loss

Stocks, Bonds, and Mutual Funds Basic Types of Stock Common Stock Preferred Stock

Stocks, Bonds, and Mutual Funds Common Stock Receive dividends based on the companies earnings Voting rights in the companies board of directors Each share you own, you have one stock Owning this type of stock is a pro/con

Stocks, Bonds, and Mutual Funds Preferred Stock Receive a fixed earning Receive the same dividends no matter what kid of profit the company is/isn’t making. If the company does not make enough money, the preferred stockholders get paid, however the common stockholders will not No voting rights Owning this type of stock is a pro/con

Stocks, Bonds, and Mutual Funds The Stock Markets- Stocks are bought and sold on the stock market, also called the stock exchange. Anyone who has the money to buy a share of stock can invest Three major stock markets New York Stock Exchange NASDAQ American Stock Exchange

Stocks, Bonds, and Mutual Funds New York Stock Exchange In terms of dollars, it is the largest in the world and one of the oldest (1790s) Very similar to what you see in the movies Around 1,366 brokers buying and selling orders per day. About 3,000 US and foreign companies are listed on the NYSE

Stocks, Bonds, and Mutual Funds NASDAQ Founded in 1971 Represents the largest US stock market in terms of listings Approx. 3,200 companies are listed and trades more shares per day than any other US market. NASDAQ= National Association of Securities Dealers Automated Quotations systems All done online

Stocks, Bonds, and Mutual Funds American Stock Exchange AMEX Not very big Only handles 10% of trades

Stocks, Bonds, and Mutual Funds Before you invest in a stock you will want to know the following…. What has it been doing the past year Has its price been going up or down What kind of dividends does it pay

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will want to know 52 Week High- in dollars and cents, the highest price paid for one share during the past 52 weeks 52 Week Low- shows the lowest price paid for a share during the past 52 weeks. Stock(Ticker)-The name of the company and its stock ticker symbol

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will want to know Div- indicates, in dollars, the amount of dividend forecasted for the following year Yield- % indicates the rate of return, which is equal to the dividend per share of stock dividend by the closing price. P/E- the price-earning ratio-the closing price per share of stock divided by the company’s net earning per share over the past year

Stocks, Bonds, and Mutual Funds Newspaper (or online) terms you will want to know Vol(00s) indicates the number of shares traded on that particular day (in hundreds) High- each day’s intra-day high trading price Low- each day’s intra-day low trading price Close- shows the closing price-the price paid in the final transaction of the day Net Chg- the difference between today’s closing price and the closing price on the previous day.

Stocks, Bonds, and Mutual Funds Evaluating Stocks Blue-Chip Stocks- safe investments in the ownership of large respected corporations that have been around for many years Dow Jones Industrial Average Daily average of the 30 largest blue-chip companies “The Dow” quotes on a number of points not actual stock prices Each point is equal to $1.00

Stocks, Bonds, and Mutual Funds Evaluating Stocks Bull Market When investors are optimistic about the market Bear Market When investors are pessimistic about the market

Stocks, Bonds, and Mutual Funds Risk and Return How much risk are you willing to take? The greater potential on your return, the greater the risk Are you buying and selling stocks to make money? If this is the case you may be wiling to take more risk since you are not in it for the dividends

Stocks, Bonds, and Mutual Funds Higher Risk Investments for the extreme dare devils Futures Options Penny Stocks

Stocks, Bonds, and Mutual Funds Futures Contracts to buy or sell a commodity, stock, or other financial instrument for a set price, at a specific date in the future. Wheat, Corn, and/or Soybeans Livestock A person investing in futures is basically betting that the price of a particular stock is going to rise or fall in the future.

Stocks, Bonds, and Mutual Funds Options The owner of a option has the right- but not the obligation- to buy or sell a stock at a predetermined price, on or before a specific date.

Stocks, Bonds, and Mutual Funds Penny Stocks Low-priced stocks, usually less then $1.00 per share. Issued by start up companies They do not have reliable growth patterns. Not traded on major markets, so they are not easy to find More times than not they end up closing- if this happens investors lose all their money If the company is successful, investors could end up with a lot of money.

Stocks, Bonds, and Mutual Funds Many different organizations sell bonds to raise money Bonds can be purchased from companies as well as towns, cities, states or the government.

Stocks, Bonds, and Mutual Funds Basic Types of Bonds Bond- similar to an IOU Bonds are sold in order to borrow money for things such as new buildings, starting up new businesses or creating new transportation systems. When you buy a bond you are simply lending money to that organization. The issuer of the bond (the lender) must pay you back, plus interest when the bond is mature- or reaches its due date.

Stocks, Bonds, and Mutual Funds Four types of Bonds Corporate Municipal Savings T-Bill

Stocks, Bonds, and Mutual Funds Corporation Bond Corporations sell corporation bonds Must be repaid in full at maturity The bond owner receives regular, periodic interest payments during the life of the bond

Stocks, Bonds, and Mutual Funds Municipal Bonds Sold by cities, towns, countries, and other governments Also must be repaid when they reach maturity Interest on these bonds are tax-exempt You do not have to pay taxes on the income you receive by these bonds

Stocks, Bonds, and Mutual Funds Savings Bonds Sold by the US government Most popular is the Series EE Savings Bond This type of bond is purchased at a financial institution for half of what it will be worth when it is mature. Electronic EE Savings Bond Done via the Internet, purchased for face value, but cannot be redeemed for 12 months. Another way to save money

Stocks, Bonds, and Mutual Funds T-Bills – Treasury Bills Very similar to a savings bond Lowest denomination for a T-Bill is $1,000. Maturity rates vary from a few years up to 30 years.

Stocks, Bonds, and Mutual Funds Risk and Return People like Bonds because they are less risky than stocks You are garneted your money back after the maturity date