ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9 WHAT’S AHEAD 9.1Investing Basics 9.2How to Invest...

ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9

WHAT’S AHEAD9.1 Investing Basics9.2 How to Invest in Corporations9.3 How to Invest in Mutual Funds9.4 Research Investments9.5 Retirement and Other Investments


LESSON 9.1

Investing BasicsGOALSGOALS►Explain the relationship between risk

and return when investing.►Describe how to evaluate the level of risk

you should accept when investing.

© 2010 South-Western, Cengage LearningSlide 22


KEY TERMSKEY TERMS

Investing – Choosing to save in a way that earns income.

Risk – The chance that an investment will decrease in value.

Return – The income you earn on an investment. (Stated in Dollars).

Diversification – Investing in various businesses with different levels of risk.

Rate of Return – The percentage you earn on your investment. (Return/Investment).



What Is Investing?►Risk and rate of return►Evaluate your risks►Limit risk through diversification




High

High

Risk

Rate

of

retu

rn

In order to earn a higher return, you must be willing to take more risks.


How to Make Investment Choices►Your financial situation►Your risk tolerance►Your values



Why should you expect an investment with a greater potential return to have more risk?

Why should you consider your financial situation, risk tolerance, and values when choosing investments?



Why should you expect an investment with a greater potential return to have more risk?

• Investors demand a higher return for accepting greater risk.

• Organizations that offer investment opportunities must offer higher returns as their risk grows.



Why should you consider your financial situation, risk tolerance, and values when choosing investments?

• Financial situations determine how much an investor can afford to risk.

• Risk tolerance determines what investments an investor is comfortable making.

• Investing according to values provides satisfaction beyond financial goals.


ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9LESSON 9.2

How to Invest in CorporationsGOALSGOALS►Describe the ways to purchase different

types of stock. ►Explain the difference between investing

in corporate stocks or corporate bonds.



KEY TERMSKEY TERMS

corporate stock stockholder stockbroker brokerage firm stock exchange NASDAQ Dividend Capital Gain Capital Loss

dollar cost averaging preferred stock common stock corporate bond junk bond



KEY TERMSKEY TERMS corporate stock – a unit of ownership in a

corporation. Stockholder – Investors who own the corporation

because they own shares of its stock. Stockbroker – a person who handles the transfer

of stocks and bonds between buyers and sellers. brokerage firm – a company that specializes in

helping people buy and sell stocks and bonds. stock exchange – where orders to buy or sell stock

are sent and carried out. (example - NYSE) NASDAQ – electronically links brokerage firms and

is the most common way to trade stock.



Key Terms dollar cost averaging – investing equal

amounts of money at regular intervals. preferred stock – A non-voting share of

company stock that pays a fixed dividend. common stock – A voting share that does

not pay a set dividend. Most stock is common.

corporate bond – Sold by corporations to finance business activities. These are loans – not ownership. Bonds are less risky than stocks and generally pay a smaller return.



Dividend – Profit earned by a corporation and distributed to stockholders. Not all companies pay dividends.

Capital Gain – Profit you earn from selling stock at a higher price than you paid for it.

Capital Loss – Amount you lose if you sell your stock at a lower price than you paid for it.


Stock Classifications► Blue chip stocks – large, well established corporations.► Growth stocks – corporations expected to experience

rapid growth.► Large cap stocks – corporations with a total stock

value of $10 billion or more.► Mid cap stocks – corporations with a total stock value

from $2 billion to $10 billion.► Small cap stocks …less than $2 billion.► Sector stocks – companies that operate in a particular

industry or sector of the economy. ( ex. - technology)► Cyclical and non-cyclical stocks – how close is

company’s success linked to economy► International stocks – corporations located outside

U.S.© 2010 South-Western, Cengage LearningSlide 1515


What are the two ways to earn income by purchasing corporate stock?

What is the difference between stock and bonds? Why does this difference matter to you as an investor?



What are the two ways to earn income by purchasing corporate stock?

You may receive a return from owning stock if it 1) pays a Dividend or 2)increases in value if you sell your stock (Capital Gain).



What is the difference between stock and bonds? Why does this difference matter to you as an investor?

• Stocks are ownership, and returns depend on the company’s performance.

• Bonds are loans the company must repay in a specified time frame with a specified interest.

• Because bonds must be paid on time, they are less risky.


ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9 WHAT’S AHEAD 9.1Investing Basics 9.2How to Invest...

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