1. Are there really advantages to investing at a young age?
Disadvantages
Advantages

2. Understanding Your Options in Today’s Financial Markets
Warm-Up:
What are some ways that you could save your money?
Saving and Investing
Understanding Your Options in Today’s Financial Markets

3. Topic Overview Investing Financial System Investment Choices
Savings Accounts
CD’s
Mutual Funds
Bonds
Stocks

4. What is investment? Translation:
Putting money aside today so that you can have more money in the future!
The act of redirecting resources from being consumed today so that they will create benefits in the future.

5. Private Enterprise and Investing
For investment to take place an economy needs a healthy financial system.
The financial system includes savers and borrowers and allows for the transfer of money between them.
When people save or invest their money, their funds become available for businesses to use to expand and grow. In this way, investment promotes economic growth for the entire economy.

6. What are financial intermediaries?
What are some examples of financial intermediaries?
What are financial intermediaries?
Banks and Credit Unions
Finance Companies
Life Insurance Companies
Mutual Funds
Pension Funds
Financial intermediaries are institutions that help channel funds from savers to borrowers.

7. Savers make deposits to… Financial Institutions that make loans to…
Financial Intermediaries
Savers make deposits to…
Commercial banks
Savings & loan associations
Savings banks
Mutual savings banks
Credit unions
Financial Institutions that make loans to…
Life insurance companies
Mutual funds
Pension funds
Finance companies
Investors

8. What are the Three Main Functions of Financial Intermediaries?
Sharing Risk
Providing Information
Providing Liquidity

9. Things to Consider….
What are some things that you may consider before choosing an investment option?
Return and Liquidity
Savings accounts have greater liquidity, but in general have a lower rate of return.
Certificates of deposit usually have a greater return but liquidity is reduced.
Return and Risk
In general, the higher potential return of the investment, the greater the risk involved.

10. Saving and Investing Options Compare and Contrast
Savings
Accounts Learn More...
CD’s
Learn More...
Bonds
Stocks
Advantages
Disadvantages

11. Saving and Investing Savings
1. Savings Accounts
Savings
A bank account used for depositing money that may be needed in a short amount of time.
Highly Liquid/Low Interest
Money Market
Bank account that allows you to save and write a limited number of checks.
Higher interest (VARIABLE) than a savings account, but generally requires a minimum balance and has increased fees.
Liquid/Variable interest
Time Deposit (Certificate of Deposit)
Bank accounts that offer a guaranteed interest rate for a fixed amount of time.
Banks charge substantial penalty for withdrawing before the CD has reached maturity
Low Liquidity/Higher interest

12. 2. Bonds
Loans or IOU’s from the government or corporation that must be repaid to the investor.
Characteristics: coupon rate (interest rate), maturity (time until payment is due), par value (face value/principal)
Types: Savings, Treasury, Municipal, Corporate, Junk
Lack liquidity, moderate return, generally low risk

13. 3. STOCKS Represent a piece of ownership in a corporation
Potential Benefits: Capital Gains and/or Dividends
Types of Stock: Preferred (dividends) and Common (dividends based on the market)
Highly liquid, moderate to high risk

14. 4. MUTUAL FUNDS
Fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds and other financial assets.
Naturally diverse investment option, which reduced risk
Liquidity and risk vary by type

15. The Stock Market Stock Market Basics
Corporation
Economy
Investor
Corporations can raise money by issuing stock which represents ownership in the corporation.
A portion of stock is called a SHARE.
By selling shares of stock, corporations raise money to start, expand and develop their businesses.
In this way, stocks encourage overall economic growth. 15

16. How Stocks Are Traded
A stockbroker is a person who links buyers and sellers of stock.
Stockbrokers work for brokerage firms, or businesses that specialize in trading stock.
Stock exchanges are markets for buying and selling stock. 16

17. How do investors profit from stocks?
Dividends ~portions of a corporation’s profits that are paid out to stockholders. ~Generally, The higher the corporate profit, the higher the dividend. Capital gains ~Money earned when a stockholder sells stock for more than they paid for it.

18. What are four main types of stock?
Dividend Difference
Growth Stock
Pays few or no dividends.
Income Stock
Pays regular dividends.
Decision Making Difference
Common Stock
Voting member, last payout
Preferred Stock
Non-voting member, first payout 18

19. Measuring Stock Performance
Bull and Bear Markets
When the stock market rises steadily over time, a bull market exists.
When the stock market falls over a period of time, it’s called a bear market.
Stock Performance Indexes
The Dow Jones Industrial Average
The Dow is an index that shows how stocks of 30 companies in various industries have changed in value.
The S & P 500
The S & P 500 is an index that tracks the performance of 500 different stocks. 19

20. The Crash of 1929
$87
Billion
Between the years of 1925 and 1929 the value of stocks being sold on the New York Stock Exchange had more than tripled.
GM rose from $268
to $452 per share!!
$27
Billion
1925
1929

21. Causes of the Crash Dangerous investment practices
Speculation
Buying on the Margin
False sense of prosperity
The “Roaring Twenties” brought unprecedented amounts of prosperity to the United States. During this period consumers had access to many new products and believed that they could all have the glitz and glamour of the era.
Many spent well beyond their means and then utilized the largely unrestricted credit available to keep on purchasing.
Government policies “Laissez Faire”
Lack of business regulation
Lack of bank regulation
Lack of stock market regulation

22. The Beginning of the End: Black Thursday
Despite signs in September that a stock market crash may occur, many people continued to invest in the market.
By late October it became clear that the market was getting increasingly dangerous. Professional investors began to pull out of the market which resulted in a decline in prices.
On October 24, 1929 almost 13 MILLION shares of stock were frantically traded.
As stock values plummeted below the amount borrowed to purchase them, brokers demanded that investors repay their loans. When they couldn’t, brokers offered the stocks for sale.

23. The Bottom Falls Out: Black Tuesday
October 29,
1929
The Bottom Falls Out: Black Tuesday
On October 29, 1929 the stock market collapsed.
Over 16 MILLION shares of stock were sold on that day and by the end of the day many stocks had no value at all!
Investors lost over $30 BILLION which was equivalent to:
1/3 of the United States gross domestic product
Wages of ALL Americans for that entire year!
The failure of the banks was one of the most devastating results of the stock market crash because it resulted in non-investors losing their savings

24. Stock Market Crash: 2
Chapter 11, Section 3

26. Effects of the Great Crash
The Great Depression
Mistrust of banking industry/stock market
Long-term reduction of investment

27. SECTION