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Investing Opportunities Using Investment Opportunities as a Means to Increase Individual Wealth.

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Presentation on theme: "Investing Opportunities Using Investment Opportunities as a Means to Increase Individual Wealth."— Presentation transcript:

1 Investing Opportunities Using Investment Opportunities as a Means to Increase Individual Wealth

2 BIG IDEA Banks, brokerages and insurance companies provide access to investments such as stocks, bonds, mutual funds, and annuities. Used as a means to achieve personal financial goals

3 Stocks Shares of a company that can be purchased by investors through brokerage firms Investors are paid dividends A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. [1] When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders. A corporation may retain a portion of its earnings and pay the remainder as a dividend. Distribution to shareholders can be in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the amount can be paid by the issue of further shares or share repurchase.corporationshareholdersprofits [1]retained earningsdividend reinvestment planshare repurchase

4 Stocks continued… and can make a profit if a stock sold higher than the purchased price Can purchase into companies that are listed in different stock markets (NYSE, NASDAQ) ▫Domestic and International stock markets exist

5 Stocks Available only through brokerage firms Firms usually require a fee for each transaction May yield a high return on investment – opportunity for tremendous wealth gain May yield no return on investment = opportunity to lose every cent invested

6 Bonds A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as an issuer.* In return for that money, the issuer provides you with a bond in which it promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due.

7 Bonds Investment instruments that are generally low- yield and low-risk Offered by private organizations and governmental units Basically – the bond “seller” borrows the money of the investor and offers a return on the investment after a prescribed term

8 US Treasury Bonds: Here's what's available: Treasury Bills Treasury billsTreasury bills are short-term government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value. Treasury Notes Treasury notesTreasury notes are government securities that are issued with maturities of 2, 3, 5, 7, and 10 years and pay interest every six months. Treasury Bonds Treasury bondsTreasury bonds pay interest every six months and mature in 30 years.

9 Municipal Bonds issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good. When you purchase a municipal bond, you are lending money to a state or local government entity, which in turn promises to pay you a specified amount of interest (usually paid semiannually) and return the principal to you on a specific maturity date. Most income from these bonds are tax free

10 Corporate Bonds Corporate bonds (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and/or $5,000. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business. When you buy a bond, you are lending money to the corporation that issued it. The corporation promises to return your money (also called principal) on a specified maturity date. Until that time, it also pays you a stated rate of interest, usually semiannually. The interest payments you receive from corporate bonds are taxable. Unlike stocks, bonds do not give you an ownership interest in the issuing corporation.

11 Mutual Funds and Annuities Hold diversified investments in stocks, bonds, and money market accounts to limit investor risks – How? ….why is it good to diversify? Diversify: A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

12 Mutual Fund – offered through brokerage firm which invests contribution along with the contributions of other people = ability to purchase more expensive or larger shares of stocks; can sell your shares like a stock; your earnings are kept and can withdraw at regular intervals. Annuity – often run through insurance companies; you provide funds up front; those funds are invested over time; at a certain date, you begin to receive fixed payment over time with an established termination date g-an-annuity/ g-an-annuity/

13 Mutual Funds and Annuities Annuity – Guaranteed payment – Often used for retirements: investor deposits unlimited amounts of money into a tax-free account - Often has high fees or penalties for cashing out early Mutual Fund – Reduces individual risk -Diversifies investments -Professionally managed - Often expensive -Not always reliable performance

14 401(k) *(403 b = for non profit organization employees) A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account. Employer Match: (example) If you put in 3% of your $50,000 salary, or $1,500, your company puts another $1,500 in the pot. You can add more than that $1,500 yourself, but the company won’t match beyond 3%. you control how your money is invested. Most plans offer a spread of mutual funds composed of stocks, bonds, and money market investments.

15 Start young and aggressive ….. The older you get, you get more conservative.

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