Investing:

Stocks, Bonds & Mutual

Funds

Stocks, Bonds & Mutual

Funds
Investing is purchasing a financial
product or other item of value with an
expectation of favorable returns.
What is the purpose of investing?
The purpose of investing is to save money
in order to improve financial well-being.

Saving vs Investing

Saving'

Inves+ng'

Emergencies'

Long2term'goals'

More'liquid'

Less'liquid'

Limited'risk'

Higher'risk'

Lower'returns'(024%)'

Higher'returns'(8212%)'

Financial'security'

Net'worth'

Stocks, Bonds & Mutual

Funds
Return on Investment (ROI) is the rate
of revenues received for every dollar on
invested in an item or activity; expressed
as a percentage of the amount of money
saved.

Total
Return

Amount
of Money
Invested

Rate of
Return

Stocks, Bonds & Mutual

Funds
Mandy saved $2,200 in a money market
deposit account. After one year, she has a
return of $110.
What is Mandys rate of return?

Total
$110
Return

Amount
of
Money
$2,200
Invested

Rate of

.05
= 5%
Return

Stocks, Bonds & Mutual

Funds
Types of Investments
1. Stocks
2. Penny Stocks
3. Bonds
4. Mutual funds
5. 401k Plans
6. Real estate
7. Collectibles
8. Precious metals

Stocks, Bonds & Mutual

Funds

1. Stock is an instrument that signifies

ownership in a corporation and represents
claim on a share of a corporations assets
and profits.
Stocks are typically riskier and long-term
investments.

Stocks, Bonds & Mutual

Funds
2. Penny Stocks are common shares of
small public companies that trade at low
prices per share. In the United States, the
SEC defines a penny stock as a security
that trades below $5 per share.
Penny Stocks are typically the riskiest
stock based off of lack of knowledge.

Stocks, Bonds & Mutual

Funds

Stock!
A+share+of+
ownership+in+
a+company!

Stockholder+or+
shareholder!
Owner+of+the+
stock+

Stocks, Bonds & Mutual

Funds
3. Bonds are interest-bearing
certificates used as a way for
government or business to raise money.
The bondholder lends money to the
bond issuer for a set amount of time
and interest. When the bonds are sold
back to the issuer, the interest earned is
given to the bondholder.
Bonds are typically low-risk and good
for short-term investments.

Stocks, Bonds & Mutual

Funds
4. Mutual funds are open-ended investments
that are professionally managed and consist
of a variety of investment instruments
including stocks, bonds, real estate, and
speculative investments.
Diversification provides greater safety and
reduces risk.
Mutual funds are long-term investments.

Stocks, Bonds & Mutual

Funds

What is Included

Bonds
Stocks
Real Estate
Speculative
Investments

Type of Returns

Interest
Dividends
Rents
Capital Gains

Stocks, Bonds & Mutual

Funds
Mr. Conrad
has $150 to
Invest

A
G

F
Op6on 1 -
Stock

C
E

Mr. Conrad
invests in one
company s stock
Company C has
had a bad year
and their
market price
drops
significantly.
Mr. Conrad may
lose his $150
investment

Stocks, Bonds & Mutual

Funds
Mr. Conrad
has $150 to
Invest

A
G

F
Op6on 1 -
Mutual Fund

C
E

Market price
of companies C
and F
decreased
Market price
increased for
all other
companies
Mr. Conrad has
reduced his
investment risk
and may still
earn money

Stocks, Bonds & Mutual

Funds
5. 401K Plan is a defined contribution plan
where an employee can make contributions
from his or her paycheck either before or
after-tax, depending on the options offered in
the plan.
Most 401k plans offer a selection of mutual fund
investments. As an employee, you can choose how
your contributions are allocated among the
various mutual funds that are offered.

Stocks, Bonds & Mutual

Funds
6. Real estate is a piece of land and any
buildings or structures on it.

Real estate is a long-term investment.

Stocks, Bonds & Mutual

Funds
Ownership*of*residen.al*or*commercial*property*or*land*

Potential for
Returns

Capital gains
(selling the
property for more
than what was
paid)

Rent
(charging others
for use of the
property)

Real estate can be time consuming but the

potential for returns is high

Stocks, Bonds & Mutual

Funds
7. Collectibles are
items which have
value due to its rarity
and desirability, such
as antiques, baseball
cards, coins, cars,
and art.
Collectibles are longterm investments.

Stocks, Bonds & Mutual

Funds
8. Precious metals are natural metals
that have value, such as gold, silver,
platinum, and palladium.
Precious metals are long-term
investments.

Piggy
Bank
Do you need a
minimum
amount of
money to start
Can you get
initial money
back?
Does it pay
interest?

Can someone
steal it?

Is it
professionally
managed?
Is it easy to
access the
money?
Best for LongTerm or ShortTerm Goals?

Savings
Account

Individual
Bonds

Mutual
Funds

Individual
Stocks

Real Estate Collectibles

Precious
Metals

Do you need a
minimum
amount of
money to start
Can you get
initial money
back?
Does it pay
interest?

Can someone
steal it?

Is it
professionally
managed?
Is it easy to
access the
money?
Best for LongTerm or ShortTerm Goals?

Piggy
Bank

Savings
Account

Individual
Bonds

Mutual
Funds

Individual
Stocks

No

Maybe

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Maybe

Maybe

Maybe

Maybe

Maybe

No

Yes

Yes

Maybe

Maybe

No

No

No

Yes

No

No

No

No

No

Yes

Maybe

No

Yes

Yes

Yes

No

No

No

No

Yes

Yes

No

Yes

Yes

Maybe

Maybe

Maybe

Short

Short

Short

Long

Long

Long

Long

Long

Real Estate Collectibles

Precious
Metals

Stocks, Bonds & Mutual

Funds

Do all investments offer a guaranteed

positive return on investment (ROI)?

NO! Although some investments are

more likely to have a positive return on
investment.

Stocks, Bonds & Mutual

Funds
How are risk and return
related?
The greater the risk an
investment may lose money,
the greater its potential to
provide a positive substantial
return. The inverse is also
true.

Stocks, Bonds & Mutual

Funds

What factors determine the degree of risk

investors take?
1. Age
2. Risk tolerance
3. Investment goals

Stocks, Bonds & Mutual

Funds
Investor Profiles

Very Conservative seeks to maintain the

original value of the investments and is prepared
to accept lower returns for lower risk.
Conservative seeks relatively stable returns and
accepts some risk through a diversified portfolio.

Stocks, Bonds & Mutual

Funds
Moderate seeks higher medium-term returns
and accepts the possibility of negative returns
over short periods.
Aggressive seeks high long-term returns and
accepts the higher possibility of sustained
negative returns over short periods.
Very Aggressive seeks to maximize long-term
returns and accepts the possibility of greater
volatility and short-term capital losses.

Scenerios

Mrs. Hall will be retiring in

five years. She needs a lowrisk place to put her money
that will earn interest. Where
might she invest? Why?
Bonds would be a good place
for her retirement monies.
They are typically low-risk
and still pay interest.

Scenerios
Ms. Kelly will be retiring in 38 years.
She has an emergency fund that
could support her for nine months if
something were to happen. Ms. Kelly
wants her money to work for her and
she is not scared of market
fluctuations. Where might she invest?
Why?
Stocks and/or mutual funds would
be good options. Typically, stocks
and mutual funds perform well over
time and outperform other
investments.

Scenerios
Mr. Conrad needs to start
an emergency fund.
Where might he invest?
Why?
A savings account in a
bank would be a good
option for him. It is a lowrisk investment, easily
accessible and it earns
interest.

Scenerios
Ms. Uzzell wants to start
a family, and in doing so
needs to invest wisely.
What investment should
she invest in?
Real Estate, because she
would be able to provide a
long-term investment in
addition to providing a roof
for her family to live under.

Scenerios
Ms. Lockner is saving
for a new car. She
wants to buy the car in
three years. Where
might she invest?
Why?
A savings account in a
bank would be a good
option for her. She
would earn interest,
and it is a low-risk
investment.

The Basics of the

Stock Market
Economics & Personal Finance

Why Learn About Stocks

The stock market is the core of Americas economic

system

Stock is a share of ownership in the assets

and earnings of a company
Shares are a unit of ownership purchased in
a corporation or Mutual Fund.
Stock Market is a general term used to
describe all transactions involving the buying
and selling of stocks and bonds issued by a
company

Why Companies Issue Stock

At some point every company needs to raise
money. Companies can either borrow it from
somebody or raise it by selling part of the
company.
It is popular because:
The company does not have to repay the
money
Paying dividends is optional
Dividends part of the company earnings
that pays as money to stockholders

Public vs Private

Public Company: A company owned by

investors who buy shares of stock. Shares of
the company sold through one of the stock
exchanges.
Private Company: A company that is owned
by a person, family, or group and does not sell
shares to public on stock market.

Risk vs. Return

On average, stocks have a high rate of return
The increase or decrease in the original
purchase price of an investment
Higher rate of return = greater risk
Uncertainty about the outcome of an
investment
Stocks provide portfolio diversification
Money invested in a variety of investment
tools

Risk vs. Return

Market'Price'
Current'price'a'buyer'is'
willing'to'pay'

Stocks'sells'for'a''
price'higher'than'
what'was'paid'

Stock'sells'for'a'
price'lower'than'
what'was'paid'

Capital'gain''unearned'
income'received'from'the'
sale'of'an'asset'above'its'
purchase'price'

Stockholder'will'lose'
money'

2 Basic Types of
Stock

Common vs Preferred Stock

Common stock
shares do not guarantee dividend.
higher risk higher returns
includes voting power at annual meetings
Preferred stock
ownership that guarantees dividend if it
occurs,
less risk
no voting rights

Stock
Classifications

Stock Classifications

A variety of type of stocks are necessary for

a diversified portfolio
Seven basic classifications
Growth, Income, Value, Cyclical,
Countercyclical, Speculative, Blue Chip
Some stocks can be classified into more
than one category

Growth Stock
Growth stocks are from companies who have a
consistent record of relatively rapid growth and earnings
in all economic conditions
New companies expending product lines
Usually does not pay dividends
Beta is 1.5 or higher
Examples include Coca-Cola and Wal-Mart

Income Stock

Income stocks pay higher than average

dividends
Company only retains small portion of
profits
Companies with a steady stream of
income such as utility companies

Blue-chip Stock

Blue-chip stocks are from

nationally recognized companies
with long records of profit,
dividend payments, and a good
reputation for management
Less risky
Grow at a consistent rate
Examples are McDonalds, WalMart and General Electric

Short-term Investment
Strategies

Short selling is where an investor sells

shares of stock that they dont own with
the intent to buy them back later at a
lower price.
Lets use rollerblades as an example.

Your friend buys new rollerblades for $80.

You borrow them and sell them for $80.

The price at the stores has been lowered to
$45.
You buy a new pair for $45 and give them
to your friend.
You made $35!!!

Purchasing
Stock

Brokers

A Broker is a person who is licensed to

buy and sell stocks, provide investment
advice, and collect a commission on each
purchase or sale
Purchases stocks on an organized
exchange (stock market)
Over of all stocks are bought and
sold on an organized exchange

Security Exchange
Commission (SEC)

Protect investors, maintain fair, orderly,

and efficient markets, and facilitate capital
formation.

Organized Exchanges

Most stocks are traded on exchanges such as

the New York Stock Exchange or NASDAQ.
The NYSE is a physical location whereas
NASDAQ is a virtual market.
Exchanges are simply places where buyers
and sellers meet and decide on a price for a
stock. Think of it as a flea market where
buyers and sellers come together and agree
on a price for a product.

Organized Exchanges
Investments are purchased from a stock exchange
(except for real estate and some speculative
investments)

Stock exchange
provides an
organized,
central service
to buy and sell
all stocks, bonds
and other
investments
that are traded

Worldwide,
there are many
different stock
exchanges

A limited
number of
people are
allowed to buy
and sell directly
from each stock
exchange

New York Stock Exchange (NYSE)

Oldest and largest, began in 1792
Orders come in through brokerage
firms and flow down to the floor
brokers who go to a specific spot on the
floor where the stock trades.
There is a specialist whose job is to
match buyers and sellers. Prices are
determined by the auction method.
Average stock price is $33.00

American Stock Exchange

American Stock Exchange

Began in 1849
2nd largest exchange
Its requirements are not
as strict as NYSE
allowing younger,
smaller companies to list
Average stock price is
$24.00

National Association of Securities Dealers

Automated Quotations (NASDAQ)
a virtual market called an over the counter
(OTC) market. It has no central location or
floor brokers. Trading is done through a
computer and telecommunications network of
dealers.
These market makers provide continuous bids
and ask prices within a prescribed percentage
spread for shares for which they are
designated to make a market.
Mostly technology stocks.
Average stock price is $11.00

Index: is a statistical measure that represents the

value of a batch of stocks. Investors use this
measure like a barometer to track the overall
progress of the market (or a segment of it).
Dow Jones Industrial: An index based on the
stock prices of 30 actively traded large
companies. This is the oldest and most widely
followed index of stock market performance.
S&P 500: An index based on the stock prices of
the largest 500 firms traded on the New York
Stock Exchange.

Initial Public Offerings

IPO stands for Initial Public Offering. Its

the first time the stock is available to the public
to purchase.
The stock exchange itself is a secondary
market. The primary market is the brokers.

Ups and Downs

The term bear market means
the market is doing poorly and
investors are not purchasing
stocks or selling stocks already
owned
The term bull market
means the market is doing
well because investors are
optimistic about the economy
and are purchasing stocks

Ups and Downs

If more people want to buy a stock (demand)
than sell it (supply) the price goes up. If more
people want to sell than buy, the price goes
down.
The most important factor that affects the
value of a company is its earnings. Earnings
are the profit a company makes. Public
companies must report their earnings on a
quarterly basis. If a company has done well,
the stock price will likely rise. If not, it will
drop.

Ups and Downs

Often times current world events have an

impact on the price of stocks.
For example, after 9/11, aviation stocks
decreased in value. This was in
anticipation of a drop in traveling by the
consumer and thus a decrease in profits.
This caused a lot of trouble for those
companies.

Reading Stock
Quotes

Year to Date Percent Change

Year to date percent change is the stock price
percent change from January 1st of the current
year.
If a stock was $43.00 on January 1st and $36.00
on July 30th,, the percentage change would be
-16.3%
YTD
%
-16.3

52-Week
High
Low
43
36

YLD
Stock Div
%

P/E

Vol
Net
High Low Close
100s
Chg

AAR

22

1479

.33

2.5

40

37

42

.027

52-Week High Low

52-Week High & Low shows the highest

and lowest prices the stock was sold per
share during the last 52 weeks
YTD
%
-16.3

52-Week
Stock
High Low
43

36

AAR

Div

YLD
%

.33

2.5

P/E

Vol
100s

High

Low

Close

Net
Chg

22

1479

40

37

42

.027

Stock Name

Stock Each companys stock is provided with

an abbreviated trading symbol name

YTD
%
-16.3

52-Week
Stock Div
High Low
43

36

AAR

.33

YLD
%

P/E

Vol
100s

2.5

22

1479

High Low
40

37

Close

Net
Chg

42

.027

Volume

Vol 100s is the number of transactions to the

share on the reported day.
Represented in hundreds (take the number and
add two zeros)
YTD
%
-16.3

52-Week
Stock Div
High Low
43

36

AAR

.33

YLD
%

P/E

Vol
100s

2.5

22

1479

High Low
40

37

Close

Net
Chg

42

.027

High and Low

High and low entries represent the high and low

selling price of one share for the previous day

YTD
%
-16.3

52-Week
Stock Div
High Low
43

36

AAR

.33

YLD
%

P/E

Vol
100s

2.5

22

1479

High Low
40

37

Close

Net
Chg

42

.027

Close

Close is the price of the last share sold for the

day.

YTD
%
-16.3

52-Week
Stock Div
High Low
43

36

AAR

.33

YLD
%

P/E

Vol
100s

2.5

22

1479

High Low
40

37

Close

Net
Chg

42

.027

Net Change

Net change is the difference between the closing

price of the share from the prior day and the
current day
YTD
%
-16.3

52-Week
Stock Div
High Low
43

36

AAR

.33

YLD
%

P/E

Vol
100s

2.5

22

1479

High Low
40

37

Close

Net
Chg

42

.027