Saint Kentigern College YEAR 10 ENTERPRISE ECONOMICS Investing

Saint Kentigern College What is investing? The process of investing involves risking an amount of money on the value of a purchased asset (item of value).

Saint Kentigern College What is a share? Shares or Stocks are certificates indicating that you own part of a business. The more shares you have the more of the company you own. The Share (stock) market is where Shares are bought and sold

Saint Kentigern College Buy low and sell high! Principle of Gravity: What goes up must come down ‘ Don’t put all your eggs in one basket’ – Diversification (spreading the risk) ‘Put all you eggs in one baskets, but watch that basket Only invest what you are prepared to lose Never borrow money to invest

Saint Kentigern College Share Types…. Growth shares – rapid price changing shares e.g. technology shares, Microsoft, Plus Sms Steady (bluechip) share – stable price (value) investment e.g. Ports of auckland

Saint Kentigern College Share Market Indexes… Measure of overall performance In New Zealand we use the NZX50 (top 50 companies ) In Australia index is called All Ords( all ordinary) America has one called Dow Jones and another called the NASDAQ (technology)

Saint Kentigern College Active learning… What is hong Kong’s index? What is Japan’s index? What is Britain’s index?

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What causes Crashes… When people stop believing in the stock they will sell and the more people sell… encourages others to sell This may cause a panic sell with Everyone selling and a big drop in the stock market

Saint Kentigern College Famous Crashes… Tulip-mania in Holland…obsessive desire to buy Tulips causes a big price rise in the market, and then a collapse. ‘Great Crash’ in the late 1920’s 1987 Crash Collapse of the Internet stocks

Saint Kentigern College A Bubble is when there is An unsustainable increase In the prices of stocks in the Market. When pricked by a pin the Bubble bursts Into a Crash

Return… The return on a share is best measured by the percentage change in the value of the stock… share price of $0.10 or 10c a share an increase to 15c means a 50% increase

Saint Kentigern College Risk… Safe investments Money in a safe in your house Money in a bank Money as an asset e.g. House Buy other assets e.g. gold/silver

Saint Kentigern College Risk… Risky Investments Gambling Stock market Currencies (money) Futures trading Gambling on future prices of products Are you a risk seeker or are you risk averse???

Saint Kentigern College Strange ideas? Or are they? There have been many people over the years that have felt that there are patterns to the stock market movements. They feel that they can predict where the stock market will move to and therefore gain an advantage in investing. Some use difficult calculations based on Fibonacci numbers to predict stock prices. Others look at patterns that occur and see if they can find one that repeats itself.

Saint Kentigern College Risk and Return The return on an investment is the income generated from the investment, e.g. interest on bank deposits, dividends on shares, capital gain on houses etc. The greater the risk attached to an investment the greater the return investors will expect.

Saint Kentigern College Types of Investments Bank deposits Bonds Property Shares Precious metals Managed funds

Saint Kentigern College Bank deposits Simplest form of investment/savings is to deposit money in a bank. May be fixed term deposits (your money is locked away for a fixed period of time, or call accounts (money available on demand) The return on the investment (the interest paid) will be low because the risk of losing your money is small.

Saint Kentigern College Bonds When you buy a bond you lend the government money for a fixed period of time, and they pay you interest. Is a very low risk investment. The return or interest paid is low. Small investors usually buy bonds through managed funds.

Saint Kentigern College Property Many New Zealanders own their own home. The return on this investment is the capital gain on the value of the house (when the value of the house goes up over time). Rental properties are also a popular form of investment. The return on this investment includes the rental income, capital gain on value of house, and the ability to deduct expenses from your taxes.

Saint Kentigern College Shares When you buy a share in a company you own a small part of the company. The returns from owning shares are the dividends paid (part of the profits of the company paid to shareholders) and the capital gain in the value of the share (when price of share increases over time). Shares can also lose value which is called a capital loss.

Saint Kentigern College Precious metals People can invest in gold, silver and other precious metals. The return is the capital gain if the price of the metal increases on world markets. People can also invest in other precious commodities such as diamonds, works of art, etc.

Saint Kentigern College Managed Funds Small investors combine their funds into a pool and employ a bank, investment firm, insurance company to manage their money for them. The risk is reduced by spreading their investments across different types. Some funds specialise in high risk/high return investments, while others focus on lower risk/lower return investments.

Saint Kentigern College The risk/return relationship.