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Saving and Investing

Jared Ediger

on 31 May 2018

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Transcript of Investing

Comparison Shop For Investments
Many investors research and read newspapers such as the Wall Street Journal and Baron's
Website Subscriptions
Indexes are used to measure the market or to compare personal portfolios. Many have common characteristics-DJIA, S&P 500
Dow Jones Industrial Average
is the oldest index. The Dow uses 30 Blue Chip Stocks
Types of Risks
a) Interest Rate risk
Preferred Stock and Bonds carry a price and Interest rate inverse relationship. Interest rates go up, prices go down.
b) Political Risk
c) Market Risk
d) Non Market Risk
e) Company and Industry Risk

Why you should invest
Evaluate Cost and Benefits of Investment Classes
Types of Investments
Balance Risk and Return
Understand Bonds, Mutual Funds, and Stocks
Shopping for Paper Investments
Why You Should Invest
A Way to Beat Inflation When Saving for the Future
Investing Increases Wealth
Help Reach Financial Goals
Costs and Benefits of Securities
Dividends vs Capital Gains
Shareholders earn money by
Capital Gains
(Appreciation - sold for more than paid for) or
are paid periodically and taxed as income and amounts fluctuate year to year. Companies may stop paying dividends
Shareholders lose money if there is a
capital loss
in their investments.
No guarantee that stock will be worth more at a time of sale
High Risk Investments Should Have Possibility of High Return
Investments have varying degrees of
or how much it might change in value
helps weather market fluctuations from the economy, industry trends, or world events.
Someone's age should determine their risk
Smaller companies are less liquid
Companies sell shares for funding or capital
Initial Public Offering (IPO): First time a company sells shares.
When you purchase stock you become a
Auctioned on the stock market at a stock exchange.
New York Stock Exchange (NYSE) is the oldest exchange
National Association of Securities Dealers Automated Quotations (NASDAQ) is the first electronic exchange
Types of Stocks
Common Stock:
Most common type, earn income mostly from capital gains, may vote in company decisions
Owners of
preferred stock
are more likely to receive dividends over time but do not enjoy price appreciation. Stock may be purchase back by the company at anytime and cannot vote in company decisions. Receive dividends and claim of assets before common stock owners. Purchased for the income from the dividends and safety.
Blue Chips
stocks are low risk with reliable earnings.
Penny Stocks
sell for less than a dollar and are high risk.
Growth Stocks
are growing fast and typically more expensive. Investors expect to make money on the appreciation.
Value Stocks
typically have decent earnings through dividends but have a lower price-to- earning ratio.
Emerging Stocks
are young stocks that could have high potential or may fail.
Cyclical Stocks
are affected by the ups and downs of the economy.
Defensive Stocks
: Remain stable during an economic recession.
Mutual Funds
Money Market Fund
: Short term investments, low risk, pays dividends
Growth Fund
: Anticipate aggressive growth
Balanced Fund
: Provide both Income and Growth
Global Fund
Index Fund
Specialized Funds: Sector, Social, Dividend, etc
No-Load Funds
: No sales fees but higher management fees
Load Funds
: Funds with a sales fee
: Information about the fund

: Treasury securities and bonds bonds to fund home purchases.
-Treasury Bill: Short-Term, Zero-Coupon Bond
-Treasury Note: Intermediate Term of 2-10 years, pays interest every 6 Months
-Treasury Bond: Long Term (>10years) that pays interest every 6 months, may be called 3-5 years before maturity
: Local and state governments that pay for schools and highways. Do not pay federal taxes on income. Two types: Revenue and General Obligation
: Expand or fund big projects, sold through brokers or banks, may be considered high yield or junk bonds if corporation doesn't have a good rating. Debentures - unsecured debt
: Sold at discount and then redeemed for full value. Does not make interest payments and with a long maturity date. Provides a certain dollar amount in the future. Ex Treasury Bill
Generally low risk
Issued to raise money for large projects
Sell debt with a promise to pay it back
Denominations of $1,000
Investor receives a note of debt with the amount loaned, term of loan,fixed-interest rate, frequency of interest payments.
May last 30 days to 30 years
Investor receives Face value (Par) at maturity
If interest rates rise value of bonds drop
Bond Rating

Stock Information and Measurements
Annual Reports
52-Week High and Low
Company Name and Type of Stock
Ticker Symbol
Dividend Per Share
Earnings Per Share
Dividend Yield (Current yield)
= Annual Dividend / Current price
P/E Ration
= Price/Earning
Trading Volume
Day High and Low
Net Change
-an investment portfolio of stocks, bonds, and other securities that is managed by a professional fund manager
Each fund share similar objectives
Approximately 8000 available
Easy and cost effective way for investors to diverse their investments
Sold by a prospectus - a document that contains information about the funds objectives, charges, risks, and the company
Typically buy new issues directly from the investment manager.
Public Offering Price (POP) = NAV + SC
NAV = Net Asset Value (Value of Portfolio - Liabilities)/number of shares
Pay fees for professional management
Less risky than a single stock but still liquid
Other types of Securities
Exchange Traded Funds (ETF)
: Alternative to Mutual funds. Can be purchased directly from exchange, cheaper than Mutual Funds as they are not managed. Usually follow an index or not actively managed.
Real Estate Investment Trust (REIT
): A corporation that pools money to invest in properties. Individuals buys shares of stock on exchanges making them liquid
Types of Funds
Purchasing a stock
Types of Bonds
Agency Securities
Ginnie Mae
: Guaranteed by U.S. Government, FHA and VA mortgages are auctioned to private lenders, pooled together, and then sold to investors. Pay both interest and principal to investors monthly
Freddie Mac
: Distribute principal and interest payments monthly
Fannie Mae
: increases the number of lenders in the mortgage market, Distribute principal and interest payments monthly
: Collateralized Mortgage Obligations - Securities created by pools of mortgages
Types of Investments
1.Business Owner
Your Own Business or Someone Else's, Royalties (Inventor, Writer, Product Creator).
Pros: Control, OPM, OPT, Unlimited Revenue
Cons: Very Difficult, Many Hours, High Failure Rate
2. Commodities
Agriculture, Livestock, Energy, Precious Metals, and Industrial Metals
Pros: Easy Entry, Hedge Against Inflation, Tax Advantages
Cons: No Cash Flow or Leverage, Volatile
3. Real Estate
Housing, Commercial, Storage
Pros: OPM, Cash Flow, Appreciation, Stable, Slow
Cons: Time Lag, Not Liquid, Difficult, Time Consuming
4. Paper Assets or
Stock, Bonds, and Mutual Funds
Pros: Very Liquid, Easy Entry, Cash Flow
Cons: No Control, No Leverage, High Fees and Commissions
*all investments can be home-based and with tax advantages
Types of Mutual Funds
Investing Strategies:Margin, Short Selling, and Derivatives
Margin Trading
: Borrowing against account to purchase more stock. Must have a margin account and pay interest
Short Selling
: Borrow a security and resale it in hope the price will drop. Investors make profit by buying at the cheaper price and then returning the security.
: A derivative is a security with a price that is dependent upon or derived from one or more underlying assets (Investopedia). A contract to buy or sell a security. Options (Put/Call), Futures, Swaps, MBS
Buy and Hold
: Patience through the market's ups and downs. History of the market trend is up. Don't react to a down period. Many times the market rebounds stronger than than before.
Dollar-Cost Averaging
: Invest equal dollar amounts in the same security at regular intervals, regardless of the price.
Purchase Dividend paying stocks for Cash Flow.
Full transcript