Stock Markets

Being an educated investor will enable you to become financially sound.

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Keep it simple, stupid! Never invest purely for tax savings Never invest using Borrowed money

Buy on margin, short selling Diversification means to spread around Diversification lowers risk

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As the risk goes up, so does the potential return

When discussing investments, liquidity is availability (how fast it can become cash)

As there is more liquidity, there is typically less return.

Type of investments

Types of Investments: Safe = low returns

Money MarketsBundle of short-term financial instruments

CD: Certificate of DepositSavings account

Low risk Great for Emergency fund

Single Stocks

Single stock carries an extremely high degree of risk

When you buy stock, you are buying a small piece of ownership in the company

Your return comes as the company increases in value or pays you, its owner, some of the profits (dividends)

Stock Markets in America (page 174) New York Stock Exchange (NYSE)

Oldest (1792) & largestDay of a trader

NASDAQ (National Association of Securities Dealers Automated Quotations)Electronic stock market

The American Stock Exchange (Amex)Now NYSE Amex Equities Acquired by NYSE Euronext in 2009

Other Markets CME (Chicago Mercantile Exchange)

Commodity exchangeTrades futures & options on commodities

CommoditiesGood that is the same regardless who

produces it Pork bellies, corn, wheat

Blue Chip Stock

Common stock of large, stable corporations

Solid records of dividend payment Benefits:

Buy and holdBrand companiesGood for children’s portfolios

Dow Jones Industrial Average

One of main indexUsed as indicator for entire market

How many companies in Dow Jones?30 Blue Chip Stocks

Which 30?30 Blue Chip StocksAlter depending on economy

S&P 500

Standard & Poor’s index 500 large-cap common stocks

Started 1957Committee choices companies based on:

Market Size Liquidity Industry Grouping More

Classification of Stocks Growth Stocks

Show greater than average gains for the industry

Income StocksEarnings or dividends are high; provide

steady income

Lets look at some information

Bull Market

Lengthy period when stock prices rise 1983-1997: Longest bull market

Bear Market

Lengthy period when stock prices fall Decline of at least 15% in stock averages Why are they known as Bull and Bear?

FULL SERVICE• Edward Jones• Raymond James• UBS• Morgan Stanley• Wells Fargo• Merrill Lynch

• Fidelity ($7.95)• E*Trade ($9.99)• TD Ameritrade ($9.99)• Charles Schwab

($8.95)• TradeKing ($4.95)• Scotttrade ($7.00)

ONLINE

Brokers you can use

Bonds – Page 168 A bond is a debt instrument by which the

company owes you money Your return is the fluctuation in price and

the interest rate paid. Few individuals do well with sing bond purchasesGovernment bonds low interest with low riskCorporate bonds rated based on risk

AAA = good D = in default

Mutual Funds

Investors pool their money to invest Portfolio managers manage the pool

(group of money) or fund Your return comes as the value of the

fund is increased Mutual funds are good long term

investments

Mutual Funds•Buy a share = own many stocks with common interest•Load = commission•Remember mutual fund =

• an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

• Most ticker symbols end in X•Example – finance.yahoo.com

Definition of 'Capital Gain'

1. An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.A capital loss is incurred when there is a decrease in the capital asset value compared to an asset's purchase price.

2. Profit that results when the price of a security held by a mutual fund rises above its purchase price and the security is sold (realized gain).

http://www.investopedia.com/terms/c/capitalgain.asp#ixzz1rk8cxPg8

(How you make money!)

Qualified Plans

Tax-favored investment IRA, open to all with earned income

Not a type of investment but tax treatment of investments

Roth IRA pay taxes now and never againLots of ways to take money out Tax Free

Annuities = bad investment Savings accounts with an insurance

company Fixed annuities are at a low interest rate

of around 5%, aren’t really fixed, and are a bad investment

Variable annuities are mutual funds sheltered by the annuity covering, thereby allowing the mutual fund to grow tax-deferred

Real Estate

You should have lots of cash before using real estate as an investment

Least liquid consumer investment Lots of benefits and negatives to be aware

of!

Horrible Investments Gold, stays with inflation Commodities and Futures: Agricultural or

mining productsCan earn a lot but volatile and need expertise

Day TradingWhat we will do in the game, can do some but

not with all money Viaticals: The purchase of a life insurance

policy for a certain percentage of the policy's face value

Steps to Buy Investments

1

2

3

4

Create an investment planAre you aggressive, for income / growth, etc.

Find a company you want to invest inComplete research

Find a broker you likeWhat services do you need, fees, etc.

5 Start to tradeSet limits, greed is good until you lose it all

Raise CapitalNever invest more than you are able to lose

General Rule of Thumb

Shareholders should BUY LOW, SELL HIGH

BUT, when can you make money when the market is heading south?Dollar Cost AveragingDay Trade

Be diversified!

Work

Look up 3 stocksAt least 2 should be competitors

Look up a Mutual Fund Find information about retirement

accounts