Types of Investments Investment Risk Pyramid Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Types of Investments

Ownership Stock Certificate 100,000 Shares 1,000,000 Shares 10% Profit in Corporation Paid – through Dividends Dividends – not Guaranteed Can Retain Earnings More Risk Higher than average Returns Debt Bond Certificate Borrowed Money Paid – through Interest Interest – Guaranteed OBLIGATION to pay Bankrupt if Cannot Pay Less Risk NO OBLIGATION to pay Lower than average Returns Return based on Movement of Financial Assets or Instruments Contract Between Two Parties Used for Speculation A Form of ‘Bets’ or ‘Hedges’ Small Fluctuations can Produce Large Changes in Contract Value Much Larger Risk Much Higher Returns – or – Risk of Losing Large Amounts Puts / Calls Hedges Credit Swaps Arbitrage Forex Options Strike Price expiration exercise exchange price trade obligation contract date buyer right Types of Investments

Investor borrows stock SELLING SHORT And immediately sells for cash Later purchases stock Repays stock debt Loses if stock increased in value Down economy LONG BOND Profits decrease Businesses do not borrow Interest rates decrease to encourage borrowing Higher interest on existing bonds make value increase Bad economy Profits decrease Profits if stock decreased in value Borrowing decreases Buyer purchases the RIGHT to sell a security for a fixed price PUT OPTION Buyer pays a fee Seller OBLIGATED to sell at the fixed price Small Fluctuations can Produce Large Changes in Contract Value Much Larger Risk Much Higher Returns – or – Risk of Losing Large Amounts $ 100 $ 60 Purchases stock $60 Keeps a $40 profit Jesse L. Livermore made $100 million short selling in the Great Stock Market Crash of 1929 Interest rates decrease Lower new bond interest Existing bond values increase Remember ‘put down’ /play/put-option#axzz1aU4TAfi6 Video example:

Types of Investments Investment Risk Pyramid Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Investment Risk Pyramid

Low Risk High Risk Investment Risk Pyramid

Cash and Cash Equivalents High Risk Low Risk Investment Risk Pyramid

CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents High Risk Low Risk Investment Risk Pyramid

Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents High Risk Low Risk Investment Risk Pyramid

Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents High Risk Low Risk Investment Risk Pyramid

High Income Bonds/Debt Government Bonds/Debt Money Market / Bank Accounts CDs, Notes, U.S. Treasury Bills Cash and Cash Equivalents High Risk Low Risk Investment Risk Pyramid

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 High Risk Low Risk Investment Risk Pyramid

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 High Risk Low Risk Investment Risk Pyramid

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 High Risk Low Risk Investment Risk Pyramid

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 High Risk Low Risk Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Options $30 Option to purchase at face value If BYU goes to the 2012 Sugar Bowl If BYU does not go ? - $5,000 0 Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Hedge Funds Options Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Arbitrage Hedge Funds Options Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating FuturesArbitrage Hedge Funds Options Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Currency Trading FuturesArbitrage Hedge Funds Options Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Credit Swaps Currency Trading FuturesArbitrage Hedge Funds Options DERIVATIVES A contract that derives value from the movement of a financial asset Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Real Estate Flipping Credit Swaps Currency Trading FuturesArbitrage Hedge Funds Options Investment Risk Pyramid

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 High Risk Low Risk Investing Speculating Past 10 Years Rising Dividends Each Quarter Same Management Team Millionaire Next Door Real Estate Flipping Credit Swaps Currency Trading FuturesArbitrage Hedge Funds Options Investment Risk Pyramid

Types of Investments Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Investment Companies Investment Risk Pyramid Investment Companies

Expenses Dividends Components of Return Stock - Microsoft - Enron - Google - AT&T - Fly by Night Inc. - Exxon Management Fee Custodial Fee Cap Gains (losses) Interest Dividends Capital Gain Income Dividend Income Realized Unrealized Mutual Fund Shares -Commission -No Load $$$ Reinvested Investment Companies

Expenses Dividends Components of Return Stock - Microsoft - Enron - Google - AT&T - Fly by Night Inc. - Exxon Management Fee Custodial Fee Cap Gains (losses) Interest Dividends Capital Gain Income Dividend Income Realized Unrealized Mutual Fund Shares -Commission -No Load $$$ Reinvested Investment Companies

Expenses Dividends Components of Return Stock - Microsoft - Enron - Google - AT&T - Fly by Night Inc. - Exxon Management Fee Custodial Fee Cap Gains (losses) Interest Dividends Capital Gain Income Dividend Income Realized Unrealized Mutual Fund Shares -Commission -No Load $$$ Reinvested Investment Companies

Types of Investments Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Investment Taxation Investment Risk Pyramid Investment Taxation

Ordinary Tax Rates Capital Gain Tax Rates 10% 15% 28% 33% 35% 5% 15% 0% Four Federal Taxes 1. Income Tax Ordinary income tax Capital gains tax 2. F.I.C.A. (Social Security Tax) 3. Gift Tax 4. Estate Tax Investment Taxation

Ordinary IncomeCapital Gain Income Social Security Tax – 16% Federal Income Tax – 25% State Income Tax – 7% Capital Gains Tax – 15% TAX PAID EACH YEARTAX PAID ONLY WHEN GAIN IS REALIZED Four Federal Taxes 1. Income Tax Ordinary income tax Capital gains tax 2. F.I.C.A. (Social Security Tax) 3. Gift Tax 4. Estate Tax Investment Taxation

Types of Investments Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Investment Objectives Investment Risk Pyramid Investment Objectives

Different types of investments whose performance reflects the investors’ goals based on their time horizon, risk tolerance and personal wishes Government Bond Funds Municipal Bond Funds Sector Funds (Health Care) Emerging Market Funds International Stock Funds Real Estate Funds (R.E.I.T.s) Commodity Funds Large Cap Growth Funds Hedge Funds Investment Objectives

Types of Investments Investment Companies Investment Taxation Investment Objectives Investment Markets... just the basics Investment Markets Investment Risk Pyramid 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 Computer communications network – Links securities dealers Negotiated market – Broker dealers and ‘market makers’ NASDAQ – National Association of Securities Dealers Automated Quotations Most all initial public offerings completed ‘over the counter’ Three levels of reporting and tracking trades Any securities trade not handled on an exchange The largest securities market Investment Markets