Stock Market Basics Investing in Financial Assets

Review: Inflation can destroy your wealth. The best way to fight inflation is to invest your money in the Stock Market.

The Stock Market is where investors go to buy, sale, and trade stocks, bonds, and futures in companies and commodities. Stock- a share of ownership in a company.

Investment Considerations: When investors buy financial assets they should:When investors buy financial assets they should: 1. Consider the risk1. Consider the risk 2. Develop a financial goal2. Develop a financial goal 3. Invest consistently3. Invest consistently 4. Avoid certain types of investments4. Avoid certain types of investments

Types of investors 1.Long-term: Puts certificate in drawer and earns dividends. 2.Short-term: Buys low and sells high.

Market Investments: 1.Bonds, these are long-term obligations that pay a stated rate of interest for a set number of years. 2.Stocks (equities), buying part of a company and receiving part of its profits. 3.Future/Options, buying commodities before they are created.

1. Bonds: Bonds have 3 main parts: 1.Coupon; the stated interest on the bond. 2. Maturity; the life of the bond. 3. Principle; the amount that will be repaid to the lender at maturity.

Bond Yield: When comparing bonds investors must compute a bond’s current yield, the annual interest it pays divided by the purchase price. A companies credit rating will determine its bond’s yield. Investors will pay less for a bond if it is issued by a company with a poor credit history.

Bond Rating: Bond rating determines how much a bond will sell for. The highest investment grade is AAA. The lowest investment grade is D (or default bond). You should never buy bonds of a rating BBB or below. These are known as junk bonds.

Rating Companies: Standard & Poors Moody’s

Municipal Bonds: Bonds issued by a state or local government. Attractiveness: 1.They are safe, state and local governments are not going out of business. 2. Tax-exempt, the federal government doesn’t tax the interest paid on them.

Savings Bonds: Low-denomination, nontransferable bonds issued by the U.S. government. Treasury Bonds: High-denomination bonds issued by the U.S. government with maturities of 2-30 years.

2.The Stock Exchange The most common, and oldest one is in New York City: the NYSE. The most common, and oldest one is in New York City: the NYSE. It is located on Wall Street. It is located on Wall Street. It has 1400 seatsIt has 1400 seats Or memberships that Allow access to the Trading floor.

Stock Measures The market’s performance is measured by two companies; The market’s performance is measured by two companies; Dow-Jones Industrial AverageDow-Jones Industrial Average, measuring the prices of 30 stocks listed on the NYSE. Standards & Poor’s 500, measuring the prices of 500 stocks listed nationwide.Standards & Poor’s 500, measuring the prices of 500 stocks listed nationwide.

How do the values (prices) of stocks come to be? 1.Actual value. This is what the firm itself is really like. Key: MANAGEMENT.

How do the values (prices) of stocks come to be? 2.Perceived value. This is based on buying and selling. Stock Speculation.

If stock prices are generally going up for a while, then… It is a bull market.

If stock prices are generally going down for a while, then… It is a bear market.

Over-The-Counter Market: The majority of U.S. stock is traded over-the-counter, an electronic marketplace for securities that are not traded on an organized exchange. Unlike stocks of the NYSE, these do not pay dividends. The NASDAQ measures these stocks.

3. Futures Market: Contracts to buy or sell at a specific date in the future, at a price specified today. Mostly dealing with grain and livestock exchanges.

Options Markets: Contracts that give investors the option to buy or sell commodities and assets at some point in the future at a price agreed upon today. Like futures, but options give one of the parties the opportunity to back out of the future delivery.

The best strategy for an investor is to diversify his/her portfolio. Hold a number of stocks, so that increases in some can offset unexpected declines in others.