1. CHAPTER 9 INVESTING Prepare for Your Future
WHAT’S AHEAD
9.1 Investing Basics
9.2 How to Invest in Corporations
9.3 How to Invest in Mutual Funds
9.4 Research Investments
9.5 Retirement and Other Investments

2. LESSON 9.1 Investing Basics
Economic Education for Consumers
4/20/2017
LESSON 9.1 Investing Basics
GOALS
Explain the relationship between risk and return when investing.
Describe how to evaluate the level of risk you should accept when investing.
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Chapter 9

3. KEY TERMS Investing – Choosing to save in a way that earns income.
Risk – The chance that an investment will decrease in value.
Return – The income you earn on an investment. (Stated in Dollars).
Diversification – Investing in various businesses with different levels of risk.
Rate of Return – The percentage you earn on your investment. (Return/Investment).
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4. What Is Investing? Risk and rate of return Evaluate your risks
Limit risk through diversification
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5. Risk/Return Rate of return Risk
High
Rate of return
High
Risk
In order to earn a higher return, you must be willing to take more risks.
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6. How to Make Investment Choices
Your financial situation
Your risk tolerance
Your values
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7. Checkpoint 9.1
Why should you expect an investment with a greater potential return to have more risk?
Why should you consider your financial situation, risk tolerance, and values when choosing investments?
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8. Checkpoint 9.1 answers
Why should you expect an investment with a greater potential return to have more risk?
Investors demand a higher return for accepting greater risk.
Organizations that offer investment opportunities must offer higher returns as their risk grows.
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9. Checkpoint 9.1 answers
Why should you consider your financial situation, risk tolerance, and values when choosing investments?
Financial situations determine how much an investor can afford to risk.
Risk tolerance determines what investments an investor is comfortable making.
Investing according to values provides satisfaction beyond financial goals.
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10. LESSON 9.2 How to Invest in Corporations
GOALS
Describe the ways to purchase different types of stock.
Explain the difference between investing in corporate stocks or corporate bonds.
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11. KEY TERMS corporate stock dollar cost averaging stockholder
stockbroker
brokerage firm
stock exchange
NASDAQ
Dividend
Capital Gain
Capital Loss
dollar cost averaging
preferred stock
common stock
corporate bond
junk bond
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12. KEY TERMS corporate stock – a unit of ownership in a corporation.
Stockholder – Investors who own the corporation because they own shares of its stock.
Stockbroker – a person who handles the transfer of stocks and bonds between buyers and sellers.
brokerage firm – a company that specializes in helping people buy and sell stocks and bonds.
stock exchange – where orders to buy or sell stock are sent and carried out. (example - NYSE)
NASDAQ – electronically links brokerage firms and is the most common way to trade stock.
Slide 12
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13. Key Terms
dollar cost averaging – investing equal amounts of money at regular intervals.
preferred stock – A non-voting share of company stock that pays a fixed dividend.
common stock – A voting share that does not pay a set dividend. Most stock is common.
corporate bond – Sold by corporations to finance business activities. These are loans – not ownership. Bonds are less risky than stocks and generally pay a smaller return.

14. Key Terms
Dividend – Profit earned by a corporation and distributed to stockholders. Not all companies pay dividends.
Capital Gain – Profit you earn from selling stock at a higher price than you paid for it.
Capital Loss – Amount you lose if you sell your stock at a lower price than you paid for it.
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15. Stock Classifications
Blue chip stocks – large, well established corporations.
Growth stocks – corporations expected to experience rapid growth.
Large cap stocks – corporations with a total stock value of $10 billion or more.
Mid cap stocks – corporations with a total stock value from $2 billion to $10 billion.
Small cap stocks …less than $2 billion.
Sector stocks – companies that operate in a particular industry or sector of the economy. ( ex. - technology)
Cyclical and non-cyclical stocks – how close is company’s success linked to economy
International stocks – corporations located outside U.S.
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16. Checkpoint 9.2
What are the two ways to earn income by purchasing corporate stock?
What is the difference between stock and bonds? Why does this difference matter to you as an investor?
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17. Checkpoint 9.2 answers
What are the two ways to earn income by purchasing corporate stock?
You may receive a return from owning stock if it 1) pays a Dividend or 2)increases in value if you sell your stock (Capital Gain).
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18. Checkpoint 9.2 answers
What is the difference between stock and bonds? Why does this difference matter to you as an investor?
Stocks are ownership, and returns depend on the company’s performance.
Bonds are loans the company must repay in a specified time frame with a specified interest.
Because bonds must be paid on time, they are less risky.
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19. LESSON 9.3 How to Invest in Mutual Funds
GOALS
Explain what mutual funds are and how they benefit investors.
Discuss different fund objectives and how to select the right funds for you.
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20. KEY TERMS mutual fund portfolio load
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21. Mutual Funds An easy way to diversify Costs of mutual funds
Annual maintenance fees
Front-end load
Back-end load
No-load funds
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22. Mutual Fund Classifications
Index funds
Balanced funds
Large cap funds
Mid cap and small cap funds
Aggressive funds
Sector funds
International funds
Bond funds
Tax-free funds
Exchange traded funds
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23. Risk/Return Pyramid for Mutual Funds
Balanced Funds
Tax-Free Funds
Growth and Income Funds
Aggressive Funds
Greater Risk and Potential Return
Lower Risk and Potential Return
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24. Checkpoint 9.3 How do mutual funds work?
How can the classifications of mutual funds help you select the right fund?
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25. Checkpoint 9.3 answers How do mutual funds work?
By investing in a mutual fund, small investors can benefit from sharing the cost of employing professionals with other owners of the fund.
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26. Checkpoint 9.3 answers
How can the classifications of mutual funds help you select the right fund?
The major classifications can help people choose mutual funds that have investment philosophies that are similar to their own.
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27. LESSON 9.4 Research Investments
GOALS
Identify sources of investment information.
Discuss signs of dishonest investment schemes and how to protect yourself.
Describe types of regulation placed on the investment industry.
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28. KEY TERMS Securities and Exchange Commission (SEC)
Financial Accounting Standards Board (FASB)
insider trading
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29. How to Find Investment Information
Printed sources of information
Mutual funds
Stocks
Information on the Internet
Request information from companies
Ask a stockbroker
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30. Make an Investment Plan
An investment plan is part of a life-span plan.
Investors can make their own investment decisions or obtain the help of stockbrokers and financial planners.
Most stockbrokers earn income from fees.
Financial planners charge a flat fee.
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31. Investment Schemes
Any promise of a large return at low risk should make you suspicious.
Check out investment offers.
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32. Investment Regulation
Stockbroker self-regulation
Securities and Exchange Commission
SEC protections
Investment scandals
Insider trading
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33. Checkpoint 9.4
Why might you receive better advice from a financial planner than from a full-service stock broker?
What clues tell you that an investment may be dishonest? How can you protect yourself from shady deals?
What forms of regulation are used for firms that advise and trade stocks or bonds for investors?
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34. Checkpoint 9.4 answers
Why might you receive better advice from a financial planner than from a full-service stock broker?
Full-service stock brokers’ incomes depend on fees charged when they complete transactions for investors.
Financial planners may provide better advice if they are paid a flat fee for their service rather than a commission for sales.
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35. Checkpoint 9.4 answers
What clues tell you that an investment may be dishonest? How can you protect yourself from shady deals?
Some clues are hard-sell approach, unrealistically high promised return with supposedly low risk, unknown seller who won’t supply contact information or a written offer, demands for immediate payment, and the suggestion that the seller knows something no one else knows.
To protect yourself, ask for information in writing and check it out. Invest with established brokerages. If it sounds too good to be true, it probably is.
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36. Checkpoint 9.4 answers
What forms of regulation are used for firms that advise and trade stocks or bonds for investors?
The FINRA is a stockbrokers’ professional organization that regulates its members by testing brokers and registering those who passed the test.
FINRA also maintains a database of complaints filed against registered brokers.
The SEC is responsible for enforcing trading laws and overseeing stockbrokers and the firms that employ them.
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37. LESSON 9.5 Retirement and Other Investments
GOALS
Identify strategies you may use to create and carry out a financial plan for your retirement.
Describe ways to earn a return on nonfinancial investment options.
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38. KEY TERMS tax-deferred 401(k) plan individual retirement account (IRA)
403(b) plan
real estate investment trust (REIT)
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39. Plan Your Retirement
Pension plans are less common today than in the past.
Workers must take more responsibility for their own retirement savings.
Many retirement plans are tax-deferred.
The trade-off for receiving a tax advantage is a penalty for early withdrawal.
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40. Types of Retirement Plans
401(k) plans
Employer matching programs
IRA plans
403(b) plans
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41. Other Investment Options
Real estate
Your home as an investment
Other types of real estate investments
Real estate investment trusts (REIT)
Collectibles
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42. Checkpoint 9.5
What are several tax-deferred plans available to investors in the United States?
How might you earn a return from nonfinancial investments?
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43. Checkpoint 9.5 answers
What are several tax-deferred plans available to investors in the United States?
Traditional and Roth IRAs
401(k) plans
403(b) plans
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44. Checkpoint 9.5 answers
How might you earn a return from nonfinancial investments?
Nonfinancial investments can be made in real estate or collectibles.
Real estate usually increases in value over time, so investors can earn a capital gain by selling the property later or by renting out the property to earn current income.
Investing in collectibles involves substantial risk and is best undertaken by professionals.
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