2 Investments Nations must have a Financial System for investments to work.2 ways investments help:Allow people to make a profitPromote economic growth & contributes to the nation’s wealthAlways remember: Your return on an investment, usually depends on the type & risk, of the investment.
3 Investments Types of investments through saving: Financial Assets CD Certificate of DepositsFinancial Assets(securities)Savings accountBonds
4 Financial Intermediaries Can help with investments Share the risk to avoid loss of all savings through diversificationProvide Information throughprospectus to avoid research,time & money spentProvide liquidity, to avoidhaving to find buyers to turnitems into cash.
6 Types of investments Bonds Cds (Certificates of Deposits) Mutual Funds Stocks
7 Think of it as a loan, that you are giving, to the government or a company. BondA certificate a company or government issues in exchange for borrowed moneyPromises to repay a stated borrowed amount plus interest over a period of time (when maturity is met)
8 BondsA person can sell their bond for less or par value to another person.Issuers pros & consProsConsHolders do not own a part of companyFixed payment plans & interest rates, no matter how company is doingFixed payment plans
9 Researching bonds Research Companies: What to look for? Standard & Poore’sMoody’sWhat to look for?Rated by: issuers ability to payAAA/ Aaa (highest) to D (lowest)Higher the rate of the bond, the lower the interest rate is. (Less risky)Higher rate bonds sell at higher prices or par value of the bond, at all times.
10 3 Components to a bondCouponRate (InterestRate)MaturityPar Value
11 Types of Bonds Government Bonds Issued by the governmentto borrow money from thepublic and businessesTypes of governmentbonds include:*savings bonds*treasury bills* T-notes*T-bonds
12 Types of Bonds Savings Bonds Range from $50-10,000 Investor pays half of the bond’s face value and it’s value increases every 6 months until it reaches full face valueUsually matures in 10 to 15 yearsNot taxed until turned in for the face value (exempt from state and local)If cashed in before maturity a penalty is applied and will only get par value.Government uses for projectsNo default risk and no annual payments
13 Types of Bonds Municipal Bonds Issued by a state, local, or city government to raise money for highways, government buildings, libraries, parks, and schoolsNot subject to federal income tax or the state income taxes (where it was issued)Risk is low, depending on government standing.
14 Types of Bonds Treasury Bills Only given in $1,000.0 denominationsSafe from defaultMature in 3 months to 1year$10,000 minimum amount of investmentFederal taxes due when thet-bill maturesExempt from state andlocal
15 Types of Bonds Treasury Notes Safe from defaultOnly given in $1,000.0 denominationsTypes of Bonds Treasury NotesMatures in 2 to 10 years$1,000 to 5,000 minimum amount of investmentFederal taxes due when theT-Notes maturesExempt from state and local
16 Types of Bonds Treasury Bonds Only given in $1,000.0 denominationsSafe from defaultTypes of Bonds Treasury BondsMatures in 10 or more years$1,000 to 5,000 minimum amount of investmentFederal taxes due when the T-Notes maturesExempt from stateand local
17 Types of Bonds Corporate Bonds Used to expand & improve businessesValue $1, to $10,000.00Taxed as additional income (income tax)Moderate riskDepends on sells/ service of businessWatched closely and researched by companies & the Securities & Exchange Commission (SEC)Prohibits fraud & dishonest investment practices & enforces laws
18 Types of Bonds Junk Bonds (High-Yield Securities) Low rate bondsB or lower rating and “speculative”Higher interest ratesRisky
19 CD/ Certificate of Deposit Similar to a savings account and bondPurchaser places money into account, but you are not allowed to withdraw until maturity date is met.If withdraw before maturity date, penalties will accrue.Must hold within 6 month increments, with a minimum of $100.00
20 Mutual Funds (easiest way to invest with a little money) Investment company that pools the money of many individuals to buy stock, bonds, or investmentsRisk is higher than a savings account, but decreases through diversification
21 Financial Asset Markets Capital Markets offer CDs, and Corporate/ Government Bonds; that must be held for at least 1 year.Money Markets offer short-term CDs, T-bills & mutual fundsPrimary Markets offer savings bonds & CDsSecondary Markets provide liquidity to investors)
22 Stock Sold in shares which are pieces of a corporation sold to raise money for resourcesA Stockbroker that works for brokerage firm must be used to buy stocks they are licensed to sell and trade between sellers and buyersHelps with research of companies stocksRemember!!!!!!Every time a stockbroker has to buy or sell stock for their clients; they will take a commission, no matter if you make or loose money.
23 Benefits of Buying stock Dividends – money paid to stockholders for their share of the corporations profits.Paid every quarterCapital gain –profit made whenselling a stock at a higher price thanyou purchased it for.Capital loss – the money loss whenyou sell your stock for less thanHappensOFTEN
24 Types of Stocks Get Dividends Get Votes in the Company Income Stock How do you choose a stock ?Research – newspapers,internet or brokerage firmsGet DividendsGet Votes in the CompanyIncome StockGrowth StockReinvest earnings in its business, which increases its value.Preferred StockGet dividends before common stock ownersGet paid 1st after bond owners, if company goes bankrupt.Common Stock1 vote per share & voting on stock splitDue because price is to high, to where people not buying stockPrice later rise again.Most Popular StocksBlue chip Stocks(safe bet)Penny Stocks( very risky, but can makehuge profits)
25 Places where stocks are bought & sold New York Stock Exchange (NYSE) Largest stock and bond market where only the largest companies in the country are tradedAmerican Exchange (AMEX)second largest stock and bond market
27 Places where stocks are bought & sold NASDAQThe over the counter market (electronic trading) of stocks and bonds of smaller companiesShares of stock are soldin shares of a 100
28 Securities Exchange Commission (SEC) Federal Regulatory Agency that regulates the trading of stocks and bondsEstablished after theGreat DepressionInvestigate any Inside Information, which is illegal
29 Where daytrading is shown Most risky: because people are buying & selling dozens of stocks in a day, to try and make a profitDow An average of the top 30 largest companies stock price values that are traded on the NYSES+P 500 Includes the average of the stock price changes of 500 companies sold on the NYSE and the NASDAQ
30 Bull Market When investors and brokers believe that stocks will continue to rise, due toa steady rise in thestock market overa period time
31 Bear Market When investors and brokers believe that stocks will continue to drop, due toa steady drop in thestock market overa period time.