Welcome Miami Northwestern Bulls! Florida International University State Farm Financial Literacy Lab

What are stocks? Represent a fraction of ownership in a corporation Referred as: ▫Shares ▫Equity ▫Stock

Characteristics Represent a claim to part of the corporations assets and earnings Ownership gives shareholders the right to vote on management placement and policies Price determined by supply and demand Potential to earn a lot if a company is successful, but also stand to lose entire investment if the company isn't successful.

Types of Stocks Common Stock Preferred Stock

Common Stocks Represents voting rights Most frequently used Returns ▫Dividends ▫Capital Appreciation

Types Of Stock Returns Dividends: Distributing a portion of company earnings, decided by the board of directors, to its shareholders Capital Appreciation: A rise in the value of an asset based on a rise in market price

Preferred Stocks Preference in dividends. Preference in assets in the event of liquidation. Convertible into common stock. Nonvoting.

Risk Systematic risk ▫The risk inherent to the entire market Unsystematic risk ▫Company specific risk that is inherent in each investment

Advantages Limited liability Historically outperforms other investment alternatives Very liquid

Disadvantages Does not guarantee a return Less claim on assets than creditors ▫Bond Holders>Preferred > Common Not all pay dividends

Trading Stocks Most stocks are traded on exchanges ▫Places where buyers and sellers meet and decide on a price. Physical Virtual

Purchasing Stocks Using a Broker ▫Party that arranges transactions between a buyer and a seller, and gets a commission Using dividend reinvestment plans ▫Reinvesting dividends to acquire additional shares

Mutual Funds A mutual fund is a collection of stocks and/or bonds. Investors make money three ways: 1) A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) The value of the fund's shares increase in price.

Advantages of Mutual Funds Diversification Economies of Scale Liquidity Simplicity

Disadvantages of Mutual Funds Professional Management Costs Dilution Taxes