What to do with the second $10 million you earn! Investments What to do with the second $10 million you earn!

The first $10 million you gave to Mr. Rapacz. Investments The first $10 million you gave to Mr. Rapacz.

Four factors that affect the Investment Decision Growth Does the value of the investment appreciate or depreciate over time? Growth can be positive or negative. Capital Gain or Capital Loss. “On Paper” until sold.

Four factors that affect the Investment Decision Income Does the investment while owned provide earnings? Interest – from money lent. Dividends – from ownership of the asset.

Four factors that affect the Investment Decision Risk How safe or secure is the investment? What are the possibilities of the investment losing money? Risk-Reward trade-off

Four factors that affect the Investment Decision Liquidity Ability to convert to cash. Market that trades the item. Maintain value “Fair market value”

Investment Pyramid Banks - Savings and CD’s Risk Return

Savings Accounts Growth – None Income – Interest payments are taxable income Risk – None Insured by FDIC up to $100,000 $250,000 Limit is for all accounts in a bank Liquidity – Savings -aka Demand Deposits (atm) CD’s Certificates of Deposit give up some liquidity for higher interest rate

Investment Pyramid Risk Return Government Bonds Banks - Savings and CD’s Risk Return

Government Bonds Savings Bonds – non negotiable Own until mature – at least 7 years Great gift – lousy investment Treasury Bills – up to 26 weeks Treasury Notes – 2, 5 or 10 years Treasury Bonds – 30 years T-Bills, Notes & Bonds are negotiable Can sell at any time Can purchase through a bank, broker or directly from the U.S. Treasury

Government Bonds T-Bills, Notes & Bonds Growth – perhaps – purchased at discount – all T-Bills Income – yes Interest (Coupon Rate) Exempt from state & local income tax http://www.treasurydirect.gov/RT/RTGateway?page=institMktbles Risk – It’s the U.S. Government! NONE! Liquidity – good Marketable/negotiable – pay broker fee

Investment Pyramid Risk Return Corporate Bonds Government Bonds Banks - Savings and CD’s Risk Return

Corporate Bonds A way that corporations borrow money Corporation can issue bonds for a variety of purposes Expand their business Building facilities Purchasing equipment http://www.investinginbonds.com/corporatebonds/mostactive1.html

Corporate Bonds Growth – yes - if bought below par (100%) Income – yes Varies widely due to risk involved Highest risk bonds are “Junk Bonds” Risk – varies Ratings/grades text pp 322 Liquidity – yes – Bond Market

Investment Pyramid Risk Return Stocks Corporate Bonds Government Bonds Banks - Savings and CD’s Risk Return

Stocks Shares of ownership in a company Common Stock Preferred Stock Voting share of ownership in a corporation Trades quoted on a stock market If a public corporation. Preferred Stock First claim on profits/assets (preferred position) Dividend rate is usually guaranteed. Non-voting ownership

Stocks Xcel Energy Income stocks Stock pays a consistent high dividend Share price does not widely fluctuate Power companies are a good example Xcel Energy

Stocks Growth Stocks Stocks that increase their per share value Usually do not pay dividends Often split their shares Examples would be technology and software stocks. Microsoft 100 shares of Microsoft on Sept 18,1987 @114.50 $11,450 Today(1/10/12) : 28,800 shares @ $27.82 = $801,216 Dec 1999 was max 14,400 @ $58.38 $840,672 Google Apple

Stocks Growth – yes –Buy Low – Sell High Income – yes – dividends Risk – yes Liquidity – yes – stock markets Stock Markets – Quote Tickers on CNBC NYSE - 3 letters or less NASDAQ – 4 letters

Investment Pyramid Risk Return Stocks Mutual Corporate Bonds Funds Government Bonds Banks - Savings and CD’s Risk Return

Mutual Funds “Don’t put all your eggs in one basket.” Designed to allow investor to diversify Professional money manager Collects money from many investors Purchases a variety of stocks, bonds or other type of investments. There are now more mutual fund choices than stocks.

Mutual Funds Growth – possible Income – possible Risk – possible Liquidity – varies – fund policies Mutual Funds

Investment Pyramid Risk Return Other risky stuff Stocks Mutual Corporate Bonds Funds Government Bonds Banks - Savings and CD’s Risk Return