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Investing Ways to Invest
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Factors of Investing Safety How risky is it? Lower risk = lower return
Liquidity Can you easily get your money out of the investment? Checking accounts are called liquid because you can take the money out any time. Return What is the earning potential? Tied to risk
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Certificates of Deposit
What is it? Factors Purchased at a bank. The bank gives you a certificate telling you The amount you deposited The interest rate How long the money must stay in the account Higher interest rates than savings accounts You are required to keep your money in the bank for a certain amount of time 3 or 6 months 1 year 5 years Safety: FDIC insured Liquidity: less than a savings account. You cannot take money out whenever you want. Return: longer investment time and/or higher amount = higher interest rate; fixed interest
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Money Market Accounts Safety: FDIC insured up to $100,000
What is it? Factors Special type of savings account offered by a bank or credit union You deposit a required amount, usually a high balances ($5,000+) Safety: FDIC insured up to $100,000 Liquidity: may withdraw any time, but number of withdrawals may be limited Return: interest rates changes daily
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U.S. Bonds Safety: Backed by the federal government
What is it? Factors A loan to the federal government that pays you interest Types EE Bonds: discount bonds, pay half face value and each year you keep it, the interest adds up. After it reaches it’s value, it continues to add interest up to 30 years. I Bonds: sold at face value and earn interest that can be used to pay for college. Tax-free, interest rate changes Safety: Backed by the federal government Liquidity: Long-term investment, money is tied up for years Return: lower interest rate than other types of bonds
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Mutual Funds What is it? Factors Combine the money of many investors to buy many kinds of investments, like stocks, bonds, real estate, etc. A fund manager manages the investment and charges fees Safety: no one insures the investment Liquidity: can withdraw funds at any time Return: they are professionally managed, but past performance doesn’t guarantee future success
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Stocks What are they? Factors Long-term investments
Units of ownership in a company Safety: you are on your own Liquidity: you can sell at any time Return: varies depending on the company
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Kinds of interest Simple Interest Compound Interest
Calculated on the amount of money you deposit Calculated on amount of deposit PLUS interest earned Much more powerful Faster earnings
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Rule of 72 You can calculate how long it will take your money to double by dividing 72 by the interest rate This is also called the time value of money
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Time value of money Investor A invests $2,000 for 10 years, beginning at age 25. They stop investing yearly when they turn 35. Investor B begins investing $2,000 at age 35 and continues until they are 65. Who will have more money when they turn 65?
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What is it and how does it work?
The Stock Market What is it and how does it work?
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What is the stock market?
Where stocks & bonds are traded Goal is to sell stock at a higher price than you purchased it
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How long do you hold on to stock?
Long-term investments 15+ years usually offers more success
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What are stocks? Shares of ownership in a company
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Companies sell stock to get money to:
Research to become more efficient Create & improve products Expand their capital
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How it works When you buy stock, you become a “shareholder”
If the company’s profits go up, you share in those profits. If profits fall, the price of your stock drops.
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Stock prices change often
Prices rise and fall every day You are in it for the long haul, hoping that over the years, the stock becomes more valuable.
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Stock exchanges are markets for trading stock
NYSE NASDAQ New York Stock Exchange Largest & most powerful Well-established companies Blue chip stocks Exxon Mobil Chevron Wal-Mart Coca-Cola JPMorgan Chase Boeing All electronic Well-known as a high tech exchange Sirius XM Radio Microsoft Intel Yahoo! Comcast Apple
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Stock tickers
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The Dow jones industrial average
A measure of the overall health of the market Represents 30 large companies in various industries Chevron Boeing AT&T 3M American Express Nike Home Depot
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S&P 500 Standard & Poor’s 500 paints an even broader picture of stock performance It tracks price changes of 500 different stock as an overall measure of stock performance Mainly reports on stock on the NYSE
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Securities and exchange commission
A government commission created to regulate the securities markets and protect investors. It also monitors the corporate takeovers in the U.S. The laws designed by the SEC are to promote full public disclosure and to protect the investing public against fraudulent and manipulative practices in the securities markets.
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