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saving,investing

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Gayle Young

on 28 January 2013

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Transcript of saving,investing

Return, Risk, & Liquidity Rate of Return: Saving and Investment Saving: Pay taxes (always)
Spend (today)
Save (future)
Invest it
- make money on your money
- use of assets to earn income or profit Market Cycles Ups & Downs in the stock market Diversification, Mutual Funds & Indexes What should I do
with all my income? Saving, Investment,
& the Stock Market *There are always trade-offs when saving and investing. Not consuming all current income. Business Investment: Production and purchase of capital goods. Examples: machines, buildings, equipment
used to produce future goods and services Examples: Certificate of Deposit (CD), savings account Type of profit or loss you are getting on your investment. Return and Risk (Direct Relationship) Greater risk = Higher returns
Less risk = Lower returns Return and Liquidity (Inverse Relationship) Greater liquidity = Lower returns
Less liquidity = Higher returns 1. $20 Traveler's Check
2. Share of Microsoft Stock
3. 30 Day Treasury Bill
4. $5,000 Saving Accounts
5. Apartment Complex
6. $1.00 Bill
7. Gold Bullion
8. IBM 20-year Bond
9. Share in money-market mutual fund
10. Credit card with $5,000 line of credit
11. Eurodollar savings account in Swiss Bank
12. Your House
13. Oil painting by Monet How liquid is it? 1. $20 Traveler's Check
2. Share of Microsoft Stock
3. 30 Day Treasury Bill
4. $5,000 Saving Accounts
5. Apartment Complex
6. $1.00 Bill
7. Gold Bullion
8. IBM 20-year Bond
9. Share in money-market mutual fund
10. Credit card with $5,000 line of credit
11. Eurodollar savings account in Swiss Bank
12. Your House
13. Oil painting by Monet Very Liquid Somewhat Liquid Illiquid How liquid is it? Very Liquid? Somewhat Liquid? Illiquid? Dividends, & Capital Gains Stock: A certificate of ownership in an organization. Common Stock Gives ownership to the investor
and a chance to profit via dividends and capital gains. Preferred Stock Form of ownership in a corporation where they receive their dividends before common stock owners Receive dividends before common stockholders
If company goes out of business, preferred stockholders are paid back their investment before common stockholders
Less Risky than common, but only pays a fixed dividend Capital Gains A profit that results from the sale or exchange of a capital asset at a higher price than paid for. Examples: stocks, bonds, real estate If you buy 100 shares of stock from Company ABC at $100 a share you have a total investment of $10,000. If you sell your 100 shares for $125 a share ($12,500) you will realize a capital gain of $25 a share or $2,500 total. Purchase Price $100/share
# Stocks Purchased 100
Total Investment $10,000 ($100x100)
Sales Price $125/share
Total Sales Price $12,500 ($125x100)
Capital Gain $2,500 ($12,500-$10,000) Scenario: Do the Math: Dividends Portion of the company’s profits paid out to it shareholders. Influenced by successes and failures of the issuing company.
May or may not pay out a dividend. Investors may invest in stock to receive dividend payments.
Profit can be distributed through dividends or retained earnings (money kept for expansion or growth or to offset losses). Example: If you own 100 shares in Company ABC and they declare a $10 annual dividend, you will receive $1,000 ($10 x 100) a year or $250 a quarter. The stock market tends to move in cycles of activity.
Not predictable Bull (positive): attacks by thrusting its horns up investor confidence - optimism
prices rising or are expected to
applies to anything be trades Bear (negative): attacks by swiping paw down prices falling or expected to
enter a downturn of 15-20% in multiple indexes The stock market is greatly affected
by economics, social, and political factors. Some factors encourage investment in the market, others make investors unwilling to take the risk of marketing investing. Some positive factors include a strong money supply, tax cuts, low interest rates, and political stability. Influencing Factors Some negative factors include a tight money supply, increased taxes, high interest rates, political unrest, and pending elections. Diversify Purchase different investments to minimize your risk of loss in the market If one or two investments go down, the chances of all of them tanking are slim if you have them in different industries Several businesses to spread risk Diversification of a portfolio all under one fund Mutual funds carry risk
possible loss of principal Not insured by the FDIC Not guaranteed by banks Mutual Fund Each exchange calculates an index, or benchmark,
based on the activity of its member companies' stock prices. Indexes "The market's up" or “the market's down," refers to the Dow Jones Industrial Average. Index Index composite of 30 companies. It is considered a reliable indicator of the strength, or weakness, of stocks in general. A short list of the major U.S. indices:
Dow Jones Industrial Average (DJIA)
Dow Transports (DJTA)
Dow Utilities (DJUA)
DJ Wilshire 5000
NASDAQ Composite / NASDAQ 100
S&P 500 Index (S&P 500) / S&P 100
Russell 2000
NYSE and AMEX Composites Market Indices & Averages Reading a Stock Table Personal Investment: Purchasing financial securities. Examples: stocks, bonds, mutual funds,
real estate Liquidity: The ease in which an asset can be converted to cash. Examples: cash is very liquid, a home purchase is very illiquid Risk: The possibility that you might gain or lose money. If you want to achieve greater returns, you generally have to take on greater risk. If you desire greater liquidity in your assets, you can generally expect lower returns.
If you don't require liquidity in you investments and can "tie up" your money for longer periods of time, you can generally expect greater returns. You will pick one stock and invest $5,000.
You will also pick one mutual fund and invest $5,000.
You will record the price of your investments and the Dow Jones daily.
At the end of the semester you will do a final analysis of your investments. www.finance.yahoo.com 52W
high 52W
low Stock Ticker Div Yield
% Vol
00s High P/E Low Close Net
chg 21.50 8.00 SkyHighCorp SHC 76 3143 21.50 20.75 21.25 +.25 47.00 8.00 LowDownInd LDI 2.35 5.7 18 2735 41.00 40.85 41.00 -.50 25.00 21.00 ValueNowInc VNI 1.00 4.5 12 1894 22.25 22.00 22.00 +.10 83.00 33.00 DoinBadlyCorp DBC 7601 34.00 33.00 33.50 -.75 Mutual Fund Codes: MCHFX, FAIRX, OAKIX, DODFX Stocks: Your choice. US only. Investment Sheets Answer: To generate capital. Capital is reinvested to expand the corporation. Publicly Owned Corporations are those whose stock shares are traded in public markets.
Examples: NASDAQ, NYSE, AMEX Why Do Corporations Issue Stock? NYSE - New York Stock Exchange – “The Big Board”
Founded in 1792, the oldest and most prestigious stock exchange in the U.S. – 3,000 mostly large-cap companies
NASDAQ - National Association of Securities Dealers Automated Quotation System - computerized national trading system that lists more than 5300 small-cap & technology companies
AMEX - The American Stock Exchange founded in 1842 as the New York Curb Exchange – 700 companies Major Exchanges Five Small Exchanges Regional exchanges are located in:
Chicago
Cincinnati
Boston
Philadelphia
Pacific region, which is split between Los Angeles and San Francisco. Stock Categorization Stocks are categorized in different ways, depending on a variety of factors:
company's size
number and value of shares in circulation
industry, etc. Market Capitalization - classifying by value or size of the company according to the number of outstanding shares times the current price of the stock
Small Cap – small growth oriented companies – high risk, greatest gains
Large Cap – well know companies – high prices – low risk
Mid Cap – good growth companies – less risk than small cap – greater growth than large cap Categories of Stock Highly volatile stock with good gains, if you pick the right one
Represent sectors of the economy
Technology
Health care
Financial Services Sector Stocks Blue Chips Largest most consistently profitable companies that usually pay dividends
Coca-Cola
General Electric
McDonald’s
Exxon-Mobile
Wal-Mart
Gillette Stock Splits When a stock’s price becomes too high and investors began to lose interest, companies will often issue a stock split.
The company simply distributes more stock and decreases the price of each share.
It can be done in any way 2:1, 3:1 or even a reserve split where if you owned 1 share you would own of a share if they did a reserve split Who Decides Dividends? A companies Board of Directors decides how large a dividend the company will pay, or whether it will pay one at all.
Quarterly dividend payments are the most common; annual and semiannual payments are less common.
Usually only large, established companies pay dividends.
This is because smaller companies need to reinvest their profits to continue growing. IPO - Initial Public Offering Taking a company through a public offering on the U.S. securities markets is a major undertaking
It is a source of pride, an opportunity for business growth, and a serious legal responsibility.
Great way to get growth money for expansion.
Downside – give up control
Only time company gets money Stock Terminology Investor
Returns Voting
Owner? Income Stock Pays Dividends Growth Stock Few or No Dividends Common Stock Voting Stock Preferred Stock Nonvoting
Priority in dividends Stock and Investor Profits Earn regular income – dividend payments
Buy low, sell high…hopefully Sell at higher price than you bought? Capital gain Sell at lower price than you bought? Capital loss When do you reap the benefits? How do businesses generate additional investment funds? What effect does the buying and selling of stocks on the stock market have on business investment? When do you actually experience a capital gain (or loss) for your stock? Sooo.... Stock - Why? What? One investment alternative Investors purchase stock in companies to make money and increase their wealth Stock represents ownership in company Stock issued in portions called shares Purchase stock through a stockbroker or online – not usually directly from company Called a shareholder – now you have a voice in how that company is managed
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