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Published byCornelia Porter Modified over 9 years ago
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Planning to use your money for the future Making Money with Money Risk is going to be involved Higher Risk=Higher Rate of Return (or Loss)! Return is the amount of money earned on an investment RATE OF RETURN Return (profit) / Investment $100 (earned) / $1000 (investment) = 10%
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Consider: Financial Situation Risk Tolerance Values Goals Diversification – spreading your money out over several different investments
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Common Stock Voting share No set dividend ▪ Board of Directors (elected by shareholders) decide on dividends No assets if company goes under (and after preferred stockholders) Riskier than preferred stock (possibility of higher return) Frequent price changes Market Price of Common Stock is determined by the demand for the stock
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Preferred Stock Non-voting share Fixed dividend, unless company incurs loss Receive assets if company goes under before common stockholders
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Large, well-established companies History of steady sales and profits Usually pay dividends Dividends usually grow Values do no change rapidly AT&T Ford IBM GE
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Small/young companies New products Little to no dividends Profits used to purchase new equipment or research Expected to experience rapid growth Higher risk
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Dividends - Distribution of a portion of a company's earnings, decided by the board of directors to a class of its shareholders. The amount of a dividend is quoted in the amount each share receives or in other words dividends per share. Selling Capital gain Capital loss
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The only way to earn money is to sell the stock. You are never guaranteed your investment back.. No matter which stock you buy! Stocks are better used as a long-term investment compared to a short term investment Investigate a company before buying
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Annual Dividend of an Investment/current market value (current price) Yield = a % Increase in current yield is healthy
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Corporations after tax earnings / the number of outstanding shares (shares people own) Measure the amount of profit for each share Increase is a good thing
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Price Earnings Ratio Price of one stock/corporations earnings per share Low PE is a good sign Low PE indicates the company has a lot of earnings when compared to the price of the stock
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Difference between the close of a stock on one day and that of the opening on a new day. You would want a high change because more people are demanding the stock.
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Security and Exchange Commission (SEC) – enforces laws concerning the trading of stocks and bonds and licenses stockholders SEC prevents insider trading – trading stock based on info not available to the general public
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Original Investment = Shares * Cost Dividend * Number of Shares * Years = Current Return (Selling Price Per Share – Purchase Price Per Share)*Number of Shares Held = Capital Gain Current Return + Capital Gain = Total Return$ Total Return/Original Investment = Rate of Return /$6375 = 34%
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Bondholder is a creditor of the company issuing the bond Bonds essentially a loan to a company or government for repayment in the future
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401K plans through employer Employee matching program Portable Choose investment plan Can be tax deferred Pension plans (not so common any more) Offered by Corporations as a benefit for lengthy employment Designed to provide retirement income Usually a portion of what the employee was making before retirement
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Group of investments owned by many investors Investors buy shares of the fund Fund pools money to buy a variety of stocks and investments Diversify your investment Benefit of services of investment professionals who make decisions for you Value changes with the value of stocks or bonds
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Wall Street Journal Info on businesses, banks, government, foreign nations Quotes stocks (ticker symbol), bonds, mutual funds Forbes, Fortune, Kiplinger’s Personal Finance Magazine, Money Internet
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Invest through large, well established stock brokerage firms Ask name, address, info of any company asking you to invest—check them out! Get investment offer in writing Avoid a hard sales pitch to buy NOW “inside” information is dishonest and fraudulent Immediate payment is NOT due (5 days)
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How does diversification help limit risk? How does age and financial situation affect how you make investment decisions?
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