1. W!se Unit 5 Investing

2. What is Investing?  Putting money to work earning more money for the future

3. What is the purpose of investing?  People invest to increase assets (things you own that have value) Produce wealth Meet financial goals  Wealth increases with regular investing and time  Investing must be done for the long- term

4. Investment Products  Stocks  Mutual funds  Bonds  Real estate  Collectibles (antiques, coins, sport cards, comic books, etc.)

5. Investing Vocabulary  Investing – committing money or capital in order to gain a financial return.  Security – a tradable document that shows evidence of debt or ownership  Yield – the amount of money an investment earns.  Coupon rate – rate of interest on a bond  Bond discount – difference between the amount paid for the bond and its face value.  Mature – to become due

6. Bonds What are they?  A bond is a certificate issued by a government or company promising to pay back borrowed money at a fixed rate of interest on a specified date.  It is an “IOU,” certifying that you loaned money to a government or corporation and outlining the terms of repayment.

7. How Bonds Work  A buyer may purchase a bond at a discount. The bond has a fixed interest rate for a fixed period of time. When the time is up, the bond is said to have “ matured,” and the buyer may redeem the bond for the full face value.

8. Advantages Disadvantages  Bonds earn interest  Most are secure, especially those from the federal government and large established companies.  Investor may lose money if he/she sells bond before it matures.  Most bonds are issued for a minimum of $1,000 which is out of reach for some investors.  Bonds may not keep up with the rate of inflation as the rates may be lower.

9. Three types of bonds 1.Corporate bonds – issued by corporations to finance things such as construction and equipment Sold by private companies to raise money If company goes bankrupt, bondholders have first claim to the assets before stockholders

10. 2. Municipal bonds  Bonds issued by local and state governments to finance city, town, or regional projects.  Interest paid comes from taxes or from revenues from special projects.  Earned interest is exempt from federal income taxes.  Projects may include schools, highways, and airports

11. 3. Federal government bonds  Bonds issued by the federal government to help raise money for regular activities.  The safest investment you can make. Even if the U.S. government goes bankrupt, it is obligated to repay bonds.  Savings bonds – registered bonds sold in denominations of $50 to $10,000  Treasury bonds - marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Interest payments are made semi-annually and the income that holders receive is only taxed at the federal level.

12. Risks of Bonds  price of bond may change full face value is guaranteed only if the investor holds onto the bond until maturity  default by the issuer government bonds are backed by the full faith and credit of the U.S. government  Bond prices are affected by interest rates, inflation, and economic conditions

13. Stocks  Stock – a share of ownership in a corporation  Dividend – share of profits given to stockholders  Capital gain – a profit made from the sale of a financial asset such as a stock or bond  Capital loss – an amount lost when an asset is sold for less than its cost

14. Types of Stock  Common stock – stock that provides the most basic form of corporate ownership giving owners voting privileges  Preferred stock – stock that gives the owner the advantage of receiving cash dividends before common stockholders receive any, but with no voting rights

15. More Stock Vocabulary  Stockbroker – person who buys and sells stocks, bonds, and other securities for clients  Stock exchange – an organized market for buying and selling financial securities Ex: NYSE, NASDAQ, Euronext  Liquidity – how easily an investment can be turned into cash  SEC – the Securities and Exchange Commission is the government agency that supervises the exchange of securities to protect investors from wrongdoing.

16. Stock Risks and Rewards  Stocks have the highest growth and the highest risk potential.  Stock symbol or ticker symbol - abbreviation for stock used on stock market (i.e. Apple is AAPL)  Factors that affect stock prices:  news  economy  new product  bankruptcy

17. Mutual Funds Created by an investment firm that raises money from many shareholders and invests it in a variety of stocks or other investments. what they are ■ Professionally managed portfolios made up of stocks, bonds, and other investments. how they work ■ Individuals buy shares, and fund uses money to purchase stocks, bonds, and other investments. ■ Profits returned to shareholders monthly, quarterly, or semi- annually in the form of dividends. advantages ■ Allows small investors to take advantage of professional account management and diversification normally only available to large investors.

18. Types of Mutual Funds  Balanced Fund includes a variety of stocks and bonds.  Global Bond Fund has corporate bonds of companies from around the world.  Global Stock Fund has stocks from companies in many parts of the world.  Growth Fund emphasizes companies that are expected to increase in value; also has higher risk.  Income Fund features stock and bonds with high dividends and interest.  Industry Fund invests in stocks of companies in a single industry (such as technology, health care, banking).  Municipal Bond Fund features debt instruments of state and local governments.  Regional Stock Fund involves stocks of companies from one geographic region of the world