Investment Strategies Career & Financial Management Mrs. Wilson

Long-Term Techniques Statistics show that over a long time stock investments have consistently beaten rates for savings accounts, CDs, and other conservative options

Buy and Hold If you buy and hold, you can ride out the down times When you are ready to sell years later, most likely you stock will have gained value In addition, many stocks pay dividends, so you are earning income while you hold stock A stock split can also add value over time –A stock split is an increase in the number of outstanding shares of a company’s stock

Stock Split Example If there were 1,000 shares outstanding with a market value of $60 then… –A 2:1 (two for one) split would result in 2,000 shares outstanding selling for $30 –You will notice that the total stock is still worth $60,000 –A stock split lowers the selling price, making the shares more affordable and encouraging investors to buy more –Price often rises!

Dollar-Cost Averaging Involves the systematic purchase of an equal dollar amount of the same stock at regular intervals Usually results in a lower average cost per share To calculate the average cost per share, divide the total amount invested by the total number of shares purchased, as shown in Figure 12-4 on page 345 in your book

Dollar Cost Averaging Monthly Investment AmtShare PriceNumber of Shares $10010 $ $ $10010 $400 Total Invested $32 54 Total Number of Shares Average share price = $8 (32/4) Your average cost per share = $7.41 Total $ invested ($400) / total number of shares (54) Ending value = $540 Last share price ($10) x number of shares (54)

Reinvesting Dividends You can save money by reinvesting dividends This means using dividends previously earned on the stock to buy more shares This avoids broker fees and other costs

Reading the Stock Listings To make wise decisions, you will need to track the progress of your chosen investments to see how they are performing Keeping track of your stock portfolio (or holdings) can be as simple as checking the closing prices periodically Refer to pages 346 and 347 in your textbook

Stock Indexes Stock index –Benchmark that investors use to judge the performance of their investments Examples: –Dow Jones Industrial Average Simply called “the Dow” It is an average of the price movements of 30 major stocks listed on the NYSE Provides a general overview of what stock prices are doing in the stock market as a whole –Standard & Poor's \ NASDAQ Composite Other commonly used indexes

Two-Day Assignment Pages 354 & 355 –Questions 1, 5, 6 (tricky!), 8, and 9. –Each answer is worth 20 points –Counts as a test grade –Due tomorrow at the end of class