Introduction to Stock Market

Common Vocabulary Common Vocabulary Stock Exchange – Place where publicly held companies are bought and sold Nasdaq – an index based on stock prices of over 5000 companies traded on the market. Transactions take place on a virtual market place. Dow Jones Industrial – An index based on the stock prices of 30 actively traded large companies. This is the oldest and most widely followed index of stock market performance. S&P 500 – An index based on the stock prices of the largest 500 firms traded on the New York Stock Exchange.

Common Vocabulary Common Vocabulary Public Company – A company owned by investors who buy shares of stock. Shares of the company sold through one of the stock exchanges. Private Company– Company that is owned by a person, family, or group and does not sell shares to public on stock market. Interest– A Fee charged to use another’s money or credit. ◦Simple- Interest calculated at regular intervals on principal only. ◦Compound – Interest calculated at regular intervals on principal and interest added previously.

Stocks/Bonds/Mutual Funds Stocks/Bonds/Mutual Funds Stocks– Ownership of shares in a business. ◦Common – shares do not guarantee dividend, higher risk – higher returns, includes voting power at annual meetings ◦Preferred – ownership that guarantees dividend if it occurs, is less risk with no voting rights. Shares – A unit of ownership purchased in a corporation or Mutual Fund. Dividends – part of the company earnings that pays as money to stockholders. Bonds– When a company or the government needs to borrow money they sell bonds. Typically sold in certain increments, with a stated interest and maturity (life/term length ) Mutual Funds– company that sells stock in itself and uses the money to buy stocks and bonds issued by other companies. (Benefits include – large variety of investments with smaller risk)

Risks Risks Risk – the chance of losing part or all of an investment. ◦Conservative – Preferred Stock ◦Moderate – Growing companies Beta Number– A calculation that helps measure the level of risk ( higher than 1 provided higher risk and higher earnings potential) Volatility – indicates how quickly the value changes P/E Ratio – Price to earnings ratio- calculated by dividing the current price per share by current earnings per share.

Retirement & Savings Retirement & Savings 401 K –Retirement savings funded by employee contributions often matched by employer. Tax free until money is withdrawn. IRA’s – (Individual Retirement Accounts) –Long term, tax sheltered deposits that are set up as a retirement plan- has amount limitations ($3000 per year for tax sheltering benefits) Money Market – Special savings account where money is loaned for less than 1 year – usually issued by financial institutions. Certificate of Deposits – (CD’s)Special form of deposit offered by banks that generally pays compound interest for a fixed period of time.

Other Basic Information Other Basic Information Bull Market – Period during which stock market prices move up for several months or years in a row. Bear Market – Period during which stock market prices move down for several months or years in a row. IPO – Initial sale of stock to public by investment bankers. Yield – Rate of the return of an investment paid in dividends or interest expressed as a percent Savings bonds – low-denominations savings bonds sold by the government purchased at a discount and can take up to 18 years to mature at full price