 Investing: The purchase of anything of value with the expectation that its value will increase.  In all investments, THE HIGHER THE RISK THE HIGHER THE REWARD!  Examples: Stocks, Bonds, Savings Accounts, Mutual Funds, Certificates of Deposit.

1. Stocks: A type of security that represents ownership in a company. So…if I own half of all of Nike’s stocks, I own half of the company.

2 Ways to Make $$$ from purchasing stocks:  1. Capital Appreciation: You buy the stock at a particular price and it goes up in value (EX: purchase 99cent store stock at $10/share…it goes up to $12).  2. Dividends: A portion of company profits that is paid out to stockholders (EX: Chase Bank earns a profit and pays out $1/share of those profits to stockholders…if you own 100 shares, you get a $100 check in the mail).

Test Question: Where do I purchase stocks??? From a Brokerage Firm (they take your orders and buy and sell stocks for you…they charge a commission, which is a fee for their services). EX: Charles Schwab, JD Power, Morgan Stanley, etc.

2. Bonds: A formal contract to repay borrowed money plus interest. How it Works: You lend a company $1000 to buy a 5% coupon bond. That company agrees to pay you $50/yr. ($1000 x 5%) for 20 years and in the last yr. they will also pay back your initial $1000 investment.

Why do you think they call the interest a company pays on a bond the “coupon rate”? Because before we had all this technology, people would actually get a piece of paper with 20 coupons on the bottom and every year people would mail in the coupon to receive payment.

3. Mutual Funds: An investment tool that pools money from many individuals and invests that money in stocks. How it works: A Mutual Fund Company purchases a bunch of different stocks for a particular fund. When you buy a share of that fund, you own a very small piece of every stock held in the fund.

What is the Main Advantage of Mutual Funds? Diversification: Reducing risk by investing in a variety of different assets. So, if you own a share of a mutual fund, and one stock in that fund “gets killed”, its no big deal b/c you have your $ spread over many different stocks.

 4. Certificate of Deposit (CD): A financial product offered to people usually by banks that offers a fixed return over a period of time.  How it works: You go to a bank, give them $1000 and in one year they promise to give you $1025.

What is the Biggest Advantage of a CD? Its extremely safe! You won’t lose your money because its insured by the US Government.

 Probably one of the most important things you should take from this class is not to spend more money than you can afford.  Credit Cards: Allows people to purchase items now and pay for them at the end of the month. If they don’t pay it all, they will start owing interest

What’s Good About Credit Cards? 1. You can establish good credit if you make your payments every month. 2. Many purchases require that you have a credit card (car rental, hotel rental, etc). 3. Convenience: You don’t have to carry a lot of cash on you. 4. Many credit cards offer “cash back”.

What’s Bad About Credit Cards? 1. If you don’t pay your balance (the amount you owe on your CC) you will pay enormous interest rates. 2. If you forget or can’t pay your minimum balance, you will be charged a $35 late fee and your credit rating will go down.

Here’s what happens: The story of a young and stupid Mr. Wharton and his love affair with Visa and AMEX.

My Attitude: I’ll pay it off later… Before I knew it…24 years old and $22k in debt on credit cards and paying 27% interest. Here’s how it works: Now I owed $550/month just to pay the interest (27%/12 x $22k) = $550 I missed payments, got late fees, and my credit rating suffered…It took 4 years to pay off.

What is a credit rating? A numerical score that indicates how likely you are to pay back a loan. Your credit score can range between 300 and 850.

Who gives me my credit rating? A: Companies that you borrow $ from How it works: If you get a Best Buy Card, buy a TV and pay it off, Best Buy reports that to the 3 major credit agencies in the US (Equifax, Experion, and Transunion). Your score goes up! The Bad News: The opposite is also true

The danger of having a bad credit score: 1. You will either not be able to get a credit card or you may get one with high interest and a low limit. 2. You will not be able to buy a car. 3. You will not be able to buy a home.

 Which of these is NOT a factor in a person’s credit history used to determine credit rating? A. Your payment history B. How much you owe C. How much income you earn D. How much you spend