Investment Options Part 1

Three reasons to invest Investing helps beat inflation Investing increases wealth Investing is fun and challenging –Opportunity to take risk Risk- the uncertainty of the outcome of any given situation –Gain knowledge

7 Wise practices of investing 1.Define your financial goals 2.Go slowly 1.Knowledge is power 2.If it sounds too good to be true it probably is 3.Follow through 4.Keep good records 5.Seek good investment advice 6.Keep knowledge current 7.Know your limits 1.How much money can you afford to risk? 2.How much risk are you willing to take?

Risk/Reward The greater the potential reward – The greater the risk that must be taken in order to achieve it. Reward Risk

Risk Pyramid

Low risk/Low return Government Savings Bonds Certificates of Deposit Savings/Money Market Accounts

Risk Pyramid

Medium risk/Medium return Stock –Stock is a share of ownership in the assets and earnings of a company –core of America’s economic system provide portfolio diversification Diversification- spreading risk among many types of investments

Why Companies Issue Stock To grow or expand To pay for ongoing business activities It is popular because: –The company does not have to repay the money –Paying dividends is optional

2 Basic Types of Stock Common Stock Vs. Preferred Stock

Common Stock Common stock – shares or units of ownership in a public corporation –Most basic form of ownership –One vote per share owned to determine company’s board of directors

Preferred Stock Preferred stock – type of stock that pays a fixed dividend –Dividends distribution of a portion of a company's earnings to shareholders –Fixed value paid out before common stock IF company fails preferred gets paid before common –Less risk than common stock = lower returns –No voting rights

How Well the Stock Market is Doing Overall Part 2

3 Basic Indicators Dow Jones Industrial Average (“DOW”) –Lists the 30 leading industrial blue chip stocks Standard and Poor’s 500 Composite Index –Covers market activity for 500 stocks –More accurate than DOW because it evaluates a greater variety of stock National Association of Security Dealers Automated Quotations (“NASDAQ”) –Monitors fast moving technology companies –Speculative stocks, show dramatic ups and downs

Ups and Downs bull market -market is doing well –optimistic about the economy and are purchasing stocks bear market -market is doing poorly –investors are not purchasing stocks –selling stocks already owned

READING STOCK QUOTES

Year to Date Percent Change Year to date percent change is the stock price percent change from January 1 st of the current year – If a stock was $43.00 on January 1 st and $36.00 on July 30 th,, the percentage change would be -16.3% YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

52-Week High Low 52-Week High & Low shows the highest and lowest prices the stock was sold per share during the last 52 weeks YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Stock Name Stock – Each company’s stock is provided with an abbreviated trading symbol name – Ticker Symbol - Amazon = AMZN YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Dividends per share Dividends per share is the total cash paid to common stockholders per share annually – Helpful when determining the type of stock – If a company paid $10,000 in dividends for 30,000 shares, the dividends per share would be $0.33 YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Dividend Yield Percentage Dividend yield percentage is the dividend expressed as a percentage of the price of the share – If a company paid $1.25 in dividends for a stock with a market price of $50.00, the dividend yield percentage would be 2.5% (1.25/50) – Helpful to know how much income to expect. A company paying high dividends is not reinvesting money to grow. YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Price/Earnings Ratio Price/earnings ratio is the closing price of the share compared to the annual earnings per share – If the stock’s market price is $50.00 and the earnings per share is $2.25, the P/E ratio is 22.2 For every dollar the company earns, the stock’s market price is worth $22.00 – A high number indicates people are optimistic about the company and health of the market. YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Volume Vol 100’s is the number of transactions to the share on the reported day – Represented in hundreds (take the number and add two zeros) YTD % 52-Week High Low StockDivYLD % P/ E Vol 100s HighLowCloseNet Chg AAR

High and Low High and low entries represent the high and low selling price of one share for the previous day YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Close Close is the price of the last share sold for the day YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Net Change Net change is the difference between the closing price of the share from the prior day and the current day YTD % 52-Week High Low StockDivYLD % P/EVol 100s HighLowCloseNet Chg AAR

Purchasing Stock

Stock brokers Full-service brokers- most expensive –will call with advice –keep an eye on stock and call if changes need to be made. Discount brokers- charge less –general advice –research options available –Buy and sell for you Online brokerage sites- Cheapest –No advice-you do research for yourself –Order takers

Three Stock Exchanges New York Stock Exchange (NYSE) –Oldest and largest, began in 1792 –2,800 companies –Strict requirements American Stock Exchange –Began in 1849 –allowing younger, smaller companies to list National Association of Securities Dealers Automated Quotations –over the counter electronic market –4,000 small companies –More volatile because companies are young and new

Stock Transactions Customer- you Broker- qualified and regulated professional who buys and sells stocks Trader- someone who buys and sells stock shares Specialist- Seller of specific stock. Shows best bids and asked prices to the market during trading hours.

Traders Broker NEW YORK STOCK EXCHANGE Specialist Customer

The guaranteed way to make money in the stock market is simple: Buy Low and Sell High

Medium Risk/Medium Return Mutual funds- shares bought in a large, professionally managed group of investments –Pools money of investors to buy large amounts of stocks and bonds –Advantages Professional management Diversification- spreading risk among many types of investments

Risk Pyramid

High Risk/High Return Futures- buy and sell stock on a specific date in the future at a specific price –Betting the price will go up or down accordingly Penny Stocks- low priced stocks of small companies- risk of failure is high Collectibles- gain or lose value as public tastes change