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9.01 Summarize the various types of short-term and long-term investments. T009-01.01 H3.

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Presentation on theme: "9.01 Summarize the various types of short-term and long-term investments. T009-01.01 H3."— Presentation transcript:


2 9.01 Summarize the various types of short-term and long-term investments. T009-01.01 H3

3 Investing  Putting your money to use in order to make money on it.  Simple Interest vs. Compound Interest  Simple – interest that is computed only on the amount saved.  Compound – interest that is computed on the amount saved plus interest previously earned.  Securities refers to bonds, stocks, and other documents sold by corporations and governments to raise large sums of money. T009-01.02 H4

4  Savings is money put aside for future use.  Most common reasons to save are: T009-01.03 H5 –Major purchases –Emergencies Saves money for a “rainy day” –Retirement

5 Investing Through Banks T009-01.04 H6 Savings Account –Simplest form of saving –Offered by all institutions (banks, credit unions, etc.) –Generally, a low minimum deposit is required –Interest is low and varies from institution to institution Certificate of Deposit –Requires a minimum deposit for a minimum amount of time –Interest rates are higher than a savings account

6 Investing Through Banks Continued  Money Market Fund T009-01.05 H7 –Kind of mutual fund, or pool of money, put into a variety of short-term debt by business and government.

7 9.02 Summarize the investing in stocks and bonds. T009-02.01 H17

8 Investing in Bonds  Bonds  Promise to pay a definite amount of money at a stated interest rate on a specified maturity date.  Bondholder  Individual who lends money to a corporation. T009-02.02 H18

9 Bond Terms  Face Value  Amount being borrowed by the seller of the bond.  Coupon Rate  Rate of interest on the bond. T009-02.03 H19

10 Types of Bonds  Corporate Bonds  Issued by corporations  Used to finance buildings and equipment.  Municipal Bonds  Issued by local and state governments.  Used to finance schools, roads, airports, etc. H20 T009-02.04

11 Types of Bonds  Treasury Bonds  Issued by federal government.  Known as Savings or Federal Bonds  Types:  Series EE Bonds  Cost half the face value.  After a specified number of years the bond becomes worth the face value.  Treasury Bills  Issued for three months to one year.  Treasury Notes  Issued for two to ten years.  Treasury Bonds  Issued for ten or more years. T009-02.05 H21

12 Investing in Stocks  Stock  Share of ownership in a business.  Stock Certificate  Proof of ownership in a corporation  Market Value  Price at which a stock can be bought or sold.  Dividends  Part of profits shared with stockholders. T009-02.06 H22

13 Types of Stocks  Preferred  Priority over common stockholders in the payment of dividends.  No voting rights.  Common  General ownership in a corporation and a right to share in the corporation’s profits  Right to vote at shareholder meetings  One vote per share. T009-02.07 H23

14 Reading a Stock Quotation Table  52 Week Hi – Highest price during previous 52 weeks  52 Week Lo – Lowest price during previous 52 weeks  Stock – Company name abbreviated  Stock Symbol – Ticker symbol  Dividend – Current dividend in dollars per share based on the last dividend paid  Yield – Dividend yield based on the current selling prices per share T009-02.08 H24

15 Reading a Stock Quotation Table  PE – (Price/Earnings ratio, comparing the price of the stock with earnings per share).  Volume – Number of shares traded.  High – Highest price during the day.  Low – Lowest price during the day.  Close – Closing price for the day.  Net Change – Change in the closing price today compared with closing price on the previous day. T009-02.09 H25

16 2. Floor broker (buyer) goes to the trading post at which time this specific stock is traded. It is traded with the floor broker (seller) who has an order to buy. T009-02.10 H26 Typical transactions follow these steps: 1.Account executive receives your order to sell stock and relays to the brokerage firm’s representative at the stock exchange. 3.A clerk signals the transaction to a floor broker on the stock exchange floor.

17 T009-02.11 H27 5.The sale appears on the price board, and a confirmation is relayed back to your account executive, who then notifies you of the completed transaction. 4.Floor broker (buyer) signals the transaction back to the clerk. Then a floor reporter – an employee of the exchange – collects the information about the transaction and inputs it into the ticker system.

18 Brokerage Firm Sells stocks for consumers  Broker  Person who acts as a go between for buyers and sellers of securities.  Commission  Fee charged by a brokerage firm for the buying and/or selling of a security. T009-02.12 H28

19 Stock Exchanges  Marketplace where brokers who represent investors meet to buy and sell securities.  Examples:  NYSE  NASDAQ  AMEX  Exchanges in San Francisco, Boston, Chicago T009-02.13 H29

20 Types of Markets  Bull Market  Occurs when investors are optimistic about the economy.  Bear Market  Occurs when investors are pessimistic about the economy. T009-02.14 H30

21 Numerical Measures for a Corporation  Current Yield  Annual dividend divided by current market value.  Price/Earnings Ratio  Price of one share of stock divided by the earnings per share. T009-02.15 H31

22 Selling a Stock  Total Return  Calculation that includes the annual dividend as well as any increase or decrease in the original purchase price of the investment.  Capital Gains  Profit from the sale of an asset such as stocks, bonds, or real estate. Taxed as income.  Capital Loss  Sale of an investment for less than its purchase price. Subtract up to $3,000 in losses from your income. T009-02.16 H32

23 9.03 Summarize other types of investments. T009-03.01 H48

24 Investing Through Insurance  Life Insurance  Cash-value insurance provides both savings and death benefits. T009-03.02 H49

25 Investing in Your Future  Pension  Series of regular payments made to a retired worker under an organized plan.  Individual Retirement Account (IRA)  Tax sheltered retirement plan in which people can annually invest earnings.  Types:  401k or 403b contributions are tax deductible and funds are taxed as regular income when they are withdrawn after age 59 ½.  Roth IRA contributions are not tax deductible, but investment gains and all funds on which taxes are prepaid are tax free when they are withdrawn after age 59 ½. T009-03.03 H50

26 Investing in Your Future  Annuity  Amount of money that an insurance company will pay at definite intervals to a person who has previously deposited money with the company. H51 T009-03.04

27 Investing Through Other Sources  Real Estate  Land and anything that is attached to it.  Mortgage  Legal document giving the lender a claim against the property.  Home Equity  Difference between the price at which you could currently sell your house and the amount owed on the mortgage.  Appreciation – general increase in value of a property.  Depreciation – general decrease in value of a property. H52 T009-03.05

28 Investing Through Other Sources  Types of Property  Undeveloped Property (Land)  Unused land intended only for investment purposes.  Commercial Property  Land and buildings that produce lease or rental income.  Real Estate Investment Trusts (REITs)  Works like a mutual fund.  Combines funds to invest in real estate. H53 T009-03.06

29 Collectibles  Items of personal interest to collectors.  Rare coins, works of art, antiques, stamps, rare books, comic books, sports memorabilia, rugs, ceramics, paintings, and other items that appeal to collector and investors. H54 T009-03.07

30 Commodities  Include grain, livestock, precious metals, currency, and financial instruments.  Futures  Commodity contract purchased in anticipation of higher market prices for the commodity in the near future. H55 T009-03.08

31 Investing With Others  Investment Clubs  Small group of people who organize to study stocks and to invest their money.  Mutual Fund  Created by an investment company that raises money from many shareholders and invests it in a variety of stocks.  Limit risk by diversifying investment. H56 T009-03.09

32 Speculative Investment  Speculator  One that has an unusually high risk. H57 T009-03.10

33 9.04 Analyze the factors that affect the rate of return on a given savings or investment plan and calculate the rate of return. H65 T009-04.01

34 Savings Plan  Putting money aside in a systematic order.  Ways to put money aside:  Regular deposit  Automatic deposit  Electronic funds transfer H66 T009-04.02

35 Starting a Program  Factors determining a program  Safety  Assurance that the money you have invested will be returned to you.  Liquidity  Ease with which an investment can be changed into cash without losing any of its value.  Yield  Rate of return (percentage of interest that will be added to you r savings over a period of time).  Diversification  Process of spreading your assets among several different types of investments to lessen risk. H67 T009-04.03

36 Factors That Affect the Rate of Return on an Investment  Risk - Chance of loss.  Rate of Return (yield)  Amount of money the investment earns.  Compounding frequency is the interest computed on the amount saved plus the interest previously earned.  Liquidity  Ease with which an investment can be changed into cash.  Resistance to inflation  Will rate of return keep up with inflation?  Tax considerations H68 T009-04.04

37 Factors that Affect the Selection of Financial Institutions  Services offered H69 T009-04.05 Business hours Location On line services

38 Financial Security Investments (low risk)  Cash  Savings Accounts  Money Market Accounts  Certificate of Deposit  US Government Bonds  Retirement Accounts H70 T009-04.06

39 Safety and Income Investments  US Treasury Securities  Conservative Corporate Bonds  State and Municipal Bonds  Income and Utility Stocks H71 T009-04.07

40 Growth Investments  Income and Growth Stocks  Mutual Funds  Real Estate  Convertible Bonds H72 T009-04.08

41 Speculation Investments (high risk)  Options  Commodities  Precious Metals and Gems  Speculative Stocks  Junk Bonds  Collectibles H73 T009-04.09

42 Calculating Rate of Return  Rate of Return = Total Interest Earned divide by Original Deposit  Example:  If you deposited $100 in account that paid $6.18 interest for one year. What is the rate of return?  $6.18/$100 =.0618 = 6.18% H74 T009-04.10

43 9.05 Analyze how saving and investing influences economic growth. H85 T009-05.01

44 Savings and Economic Growth  Individual savings allow:  Businesses to expand and create more jobs.  Demand for goods and services to increase.  Failure to save will cause less money to be invested and the economy may slow as a result.  Savings contribute to our economic stability  Government uses savings to build highways, schools, and public services H86 T009-05.02

45 9.06 Describe wills and other legal documents. T009-06.01 H89

46 Wills  Legal document that specifies how you want your property to be distributed after your death.  Intestate  Die without a legal will  State will step in and control the distribution of your estate.  Probate  Legal procedure of proving a will to be valid or invalid. H90 T009-06.02

47 Wills  Simple Will  Leaves everything to your spouse  Formal Will  Prepared by an attorney.  Holographic Will  Handwritten will that you prepare yourself  Needs to be written, dated, and signed entirely in your own handwriting. H91 T009-06.03

48 Other Legal Documents  Trusts  Legal arrangement that helps manage the assets of your estate for you benefit or that of your beneficiaries.  Living Will  Document in which you state whether you want to be kept alive by artificial means if you become terminally ill and unable to make such a decision.  Power of Attorney  Legal document that authorizes someone to act on your behalf. H92 T009-06.04

49 Guardian Person who accepts the responsibility of: 1. Providing children with personal care after their parents’ death 2. Managing the parents’ estate for the children until they reach a certain age H93 T009-06.05

50 9.07 Explain how agencies regulate financial markets and protect investors. H98 T009-07.01

51 Regulators  Securities and Exchange Commission (  Protect investors and maintain the integrity of the securities markets. H99 T009-07.02

52 Regulators  NASD (  Registers member firms, writes rules to govern their behavior, examines them for compliance and disciplines those that fail to comply.  Largest private sector provider of financial regulatory services.  Has helped bring integrity to the markets and confidence in investors. H100 T009-07.03

53 Protecting Investors  Department of the Secretary of State ( /sec )  State Securities Laws  Known as “blue sky” laws  Intent of laws is to protect the investing public by requiring a satisfactory investigation of both the people who offer securities as investments and of the securities themselves.  Securities division addresses investor complaints concerning securities brokers and dealers, investment advisers and commodity dealers as well as complaints about offerings of particular investment vehicles. H101 T009-07.04

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