Which makes more sense? Why?  To sacrifice and put away $2,000 a year when you are 22 to 33 years old (12 challenging year of saving)OR  To wait until you are more settled in your job and put away $2,000 a year when you are 34 to 65 years old (32 relatively easy years of saving)

What is the Secret to Success?  The Marshmallow test The Marshmallow test  Ted Talks:Present Self versus Future Self Ted Talks:Present Self versus Future Self

STOCKS AND BONDS Chapter 16

Financial Market  Suppose a company wants to raise money so it can invest in a new product or a new manufacturing technique, where does it get the money?  Borrow it from a bank  Issue a bond  Sell or issue stock in the company

What are Stocks?  Stock is a claim on the assets of a corporation that gives the purchaser a share of the corporation EOC study guide Personal Finance #5

What is the Purpose of Stocks?  Stocks serve as a means of linking investors (you) and businesses looking to expand

How do You Make $ From Stocks?  Corporations sell partial ownership to investors who may profit via dividends and capital gains  Dividend  Dividend: payment made to stockholders based on a company’s profits  Three Reasons to own dividend stock Three Reasons to own dividend stock  Capital gains  Capital gains: profit that results from investments into a capital asset such as stocks or bonds, which exceeds the purchase price

Stocks  Rate of Return (ROR) is the amount of return you receive on your investment  ROR is a  ROR is a ratio of money gained or lost on an investment relative to the amount of money invested EOC study guide Personal Finance #12

Rate of Return  You buy Google stock on May 7, 2010 for $246. You sell Google stock on May 7, 2015 for $524  Your rate of return is $524-$246/$246= 113%! EOC study guide Personal Finance #12 continued

Types of Stock  Common Stock: legal claim to a share of a company’s profits  If no profits, no dividends, no payments.  These “stockholders” vote for the board members.

Types of Stock  Preferred Stock: a legal claim to ownership (non-voting).  Paid first--if there is limited profit, preferred stockholders get paid, common stockholders do not.  Which would you rather own? Which would you rather own?

When Stock Prices Increase  Stock Split: typically, companies do not like the price of stock to exceed $60 per share, it becomes unattractive to the average investor. (why?)  When demand causes the stock price to rise, companies will “split” the stock and give all current stock holders two stocks for every one share they own.  Investopedia video on Stock Split Investopedia video on Stock Split

Stocks  Where can you buy stocks? A broker will buy them for you through a stock exchange:  New York Stock Exchange (NYSE)  American Stock Exchange (AMEX)  National Association of Securities Dealers Automated Quotations (NASDAQ) What is the Dow Jones Industrial Average?

How Much $ Do I Need to Invest?  You can open up an account with a brokerage firm (either with a person or online) by depositing a certain dollar amount into an account  Typically for $500 or more  Once you open your account you can begin to trade (buy and sell stock) for $7-10 a trade

Picking Stocks  Don’t know what stocks to pick or don’t want to have to worry about a companies profits and loses?  Try a Mutual Fund!  Mutual funds are a collection of stocks that are chosen and managed by a fund manager  On any given day the fund manager may buy and sell different stocks for the fund EOC study guide Personal Finance #7

How to read stock tables for dummies How do you read a stock market page in the newspaper?

Bond Investing

Bonds  A bond is an IOU, or a promise to pay, issued by companies, governments, or government agencies for the purpose of borrowing money.  Types of bonds: Corporate bonds Municipal bonds Treasury bills, notes and bonds Top uses for bonds EOC study guide Personal Finance #6

Three Major Components of Bonds  Three major components of bonds Three major components of bonds  Face value is the total amount the issuer of the bond will repay to the buyer of the bond  Maturity date is the day when the issuer of the bond must pay the buyer of the bond the face value of the bond  Coupon rate is the percentage of the face value that the bondholder receives each year until the bond matures

Bond example  School district gets permission by the population to raise $ for a new school  Public approves, bonds issued & purchased  Cash obtained by district, school built, school district via tax dollars repays bond with yearly interest for 15 or 30 years

Why Buy Bonds?  Buying Bonds from the government  Bond investing Bond investing

BONDS  What if you are presented with the opportunity to buy a bond that will offer interest rates three to four percentage points higher than safer government issues, but the company has not proven to be stable. (it may not be growing rapidly right now, or making a lot of money right now)  Would you buy it?

JUNK BONDS  Junk bonds are offered by companies that are financially unstable and have a high risk of default  If the company goes under bondholders will have to wait in a very long line with the company’s other creditors  Junk bonds typically offer interest rates three to four percentage points higher than safer government issues

JUNK BONDS Junk bonds  Are you willing to accept the risk?