1. Financing and Investing

2. Securities Three major asset classes Cash Bonds (fixed income)
Equities
Asset allocation
The percent of your assets in each asset category

3. Securities Risk Return Cash Very low Low Bonds (fixed income)
Moderate – High
Moderate
Stocks
High

4. Equities Stock Common Stock Share of ownership in a company.
Common stock owners can vote on major company decisions
They expect to receive cash dividends and to benefit from capital gains. (Often no dividends are issued.)

5. Equities Stock Preferred Stock
Stock whose holders receive preference in the payment of dividends
Seldom confers voting rights
Dividends are fixed

6. Securities Purchasers
Investment Motivations
Primary Investment Objectives by Type of Security
1. Growth in Capital - in terms of potential growth in capital over time, specifically long periods of time, common stocks are the most widely accepted.
2. Stability of Principle - Treasury bills and other money market instruments are the clear winners when it comes to stability of principle.
3. Liquidity - a measure of the speed at which assets can be converted into cash.
4. Current Income
a. money market interest rates experience up and down swings in response to economic conditions
b. the interest rate on a bond remains constant.
c. investors who seek high current income should invest a large portion of their funds in bonds.
5. Growth in Income
a. when you buy a bond, the interest rate you receive is fixed for the life of the bond.
b. interest rates on money market instruments can increase over time - and decrease as well.

7. Asset Allocation Determined by: Risk you are willing to take
Investment objectives
Rule of thumb
Cash = 3 to 6 months of expenses
(for emergencies)
% Equities = 100 – your age

8. Securities Exchanges
Stock Exchange—centralized marketplace where primarily common stock are traded.
Stock exchanges are secondary markets, selling securities which have already been issued by firms and sold in the primary market

9. Securities Exchanges The New York Stock Exchange
NYSE (Big Board)—the largest, and probably the most famous, stock market in the world
Also one of the oldest, founded in 1792
1. is the largest, and probably most famous, stock market in the world
2. Today more than 4,000 common and preferred stock issues are traded on the NYSE, and represent most of the largest, best-known companies in the U.S.
3. Buying and selling takes place face-to-face on a trading floor, and buy and sell orders are transmitted to one of 42 posts - each stock is assigned a post - on the floor of the exchange.
4. Even though the NYSE retains a trading floor, the exchange has become highly automated in recent years.
5. Its computer systems automatically match and route most orders, which are typically filled in a few seconds.

10. Securities Exchanges The NASDAQ Stock Market
NASDAQ stock market—second-largest stock market in U.S., trading stock issues of firms that are typically smaller, less well-known than those on the NSYE
Made up of many technology companies

11. Securities Exchanges Foreign Stock Markets
Virtually all developed, and many developing, countries have stock exchanges
Examples include Bombay, Helsinki, Hong Kong, Mexico City, Paris, and Toronto

12. Buying and Selling Securities
Brokerage Firm—financial intermediary that buys and sells securities for individual and institutional investors.
E*trade: An Online Brokerage Firm
Choosing a brokerage firm, and a specific stockbroker, is one of the most important decisions investors make.

13. Buying and Selling Securities
Placing an Order
A market order instructs a brokerage firm to obtain the highest price possible – if the investor is selling – or the lowest price possible – if the investor is buying
A limit order instructs the brokerage firm not to pay more than a specified price for stock if the investor is buying, or accept less than a specified price if the investor is selling
An investor’s request to buy or sell stock at the current market price is called a market order, which instructs a brokerage firm to obtain the highest price - if the investor is selling, or the lowest price - if the investor is buying.

14. Costs of Trading
When investors buy or sell securities through a brokerage firm, they pay a fee
These costs vary widely among brokerage firms
A full-service firm charges higher fees, but provides a large number of services and offers investment advice
A discount firm charges lower fees, but offers less advice and fewer services
Online brokerage firms charge some of lowest fees of all brokerage firms, and give their customers access to a wide range of investment information, though they do not provide advice to investors directly.

15. How’s the Market Doing?
Bull market
Bear market

16. Business News and Information
Bloomberg radio, AM 1170
CNBC
The Wall Street Journal
Online:
cnn.money.com,
finance.yahoo.com
google.com/finance
bloomberg.com
vanguard.com,
fidelity.com
1. At least four or five pages of most daily newspapers are devoted to reporting current financial news.
2. Focuses on the previous day’s securities transactions
3. Stocks and bonds traded on the various securities markets are listed alphabetically in the newspaper.
4. Separate sections exist for each of the major markets.
5. Numerous Internet Resources