Savings, InvestmentsSavings, Investments& the Stock Market& the Stock Market

Saving and InvestmentSaving and Investment SavingSaving

Not consuming all current income Not consuming all current income Examples: Savings Account, Certificate of DepositExamples: Savings Account, Certificate of Deposit

Business InvestmentBusiness Investment Production and purchase of capital goodsProduction and purchase of capital goods Examples: machines, buildings and equipment that Examples: machines, buildings and equipment that

can be used to produce more goods and services in can be used to produce more goods and services in the futurethe future

Personal investmentPersonal investment Purchasing financial securities Purchasing financial securities Examples: stocks, bonds, real estate, mutual fundsExamples: stocks, bonds, real estate, mutual funds Pay a higher rate of return in the long run than the Pay a higher rate of return in the long run than the

interest paid on savings accounts.interest paid on savings accounts.

Return, Risk and LiquidityReturn, Risk and Liquidity Rate of Return -Type of profit or loss you Rate of Return -Type of profit or loss you

are getting on your investment (Interest on are getting on your investment (Interest on savings)savings)

Liquidity – ease of turning assets into Liquidity – ease of turning assets into moneymoney

Return and Risk (direct relationship)Return and Risk (direct relationship) Greater risk, higher returns (NASDAQ stocks)Greater risk, higher returns (NASDAQ stocks) Less risk, lower returns (CD)Less risk, lower returns (CD)

Return and Liquidity (inverse relationship)Return and Liquidity (inverse relationship) Greater liquidity, lower return (CD)Greater liquidity, lower return (CD) Less liquidity, greater return (Bonds)Less liquidity, greater return (Bonds)

Major ExchangesMajor Exchanges NYSENYSE - New York Stock Exchange – “ - New York Stock Exchange – “The Big The Big

Board”Board” Founded in 1792, the oldest and most prestigious Founded in 1792, the oldest and most prestigious

stock exchange in the U.S. – 3,000 mostly large-cap stock exchange in the U.S. – 3,000 mostly large-cap companiescompanies

NASDAQNASDAQ - - National Association of Securities National Association of Securities Dealers Automated Quotation SystemDealers Automated Quotation System - - computerized national trading system that lists computerized national trading system that lists more than 5300 small-cap & technology more than 5300 small-cap & technology companies companies

AMEXAMEX - - The American Stock ExchangeThe American Stock Exchange founded founded in 1842 as the New York Curb Exchange – 700 in 1842 as the New York Curb Exchange – 700 companiescompanies

Types of StocksTypes of Stocks Stock – a certificate of ownership in an Stock – a certificate of ownership in an

organizationorganization Common StockCommon Stock

Basic form of ownership to an investorBasic form of ownership to an investor Chance to profit via dividends and capital Chance to profit via dividends and capital

gainsgains Designates that you own a fraction of the Designates that you own a fraction of the

companycompany

Preferred StockPreferred Stock They receive their dividends before common They receive their dividends before common

stock ownersstock owners If the company goes out of business, If the company goes out of business,

preferred stockholders are paid back the preferred stockholders are paid back the money they invested before the common money they invested before the common stockholdersstockholders

For these reasons, preferred stock is For these reasons, preferred stock is generally less risky than common stockgenerally less risky than common stock

The main drawback of preferred stock is that The main drawback of preferred stock is that it cannot benefit as much from company it cannot benefit as much from company profits because it only pays a fixed dividendprofits because it only pays a fixed dividend

Capital GainsCapital Gains

A profit made when selling stock at a A profit made when selling stock at a higher price than they paid for ithigher price than they paid for it. Most . Most people buy stock to make money from capital people buy stock to make money from capital gains. gains.

For example, if you buy 100 shares of For example, if you buy 100 shares of Company XYZ at $100.00 a share (a total Company XYZ at $100.00 a share (a total $10,000 investment) and sold it for $125.00 a $10,000 investment) and sold it for $125.00 a share ($12,500), you’ve realized a capital gain share ($12,500), you’ve realized a capital gain of $25.00 a share, or $2,500.00.of $25.00 a share, or $2,500.00.

DividendsDividends

Portion of the company's profits paid out to its Portion of the company's profits paid out to its shareholders.shareholders.

Investors buy stock for the dividend Investors buy stock for the dividend payments. payments.

For example, if Company XYZ declares an For example, if Company XYZ declares an annual dividend of $10.00 a share and you annual dividend of $10.00 a share and you own 100 shares, you’ll earn $1000.00 a year, own 100 shares, you’ll earn $1000.00 a year, or, $250.00 paid each quarter.or, $250.00 paid each quarter.

IPO – Initial Public OfferingsIPO – Initial Public Offerings The first time a company issues The first time a company issues

stock to the publicstock to the public It is a source of pride, an It is a source of pride, an

opportunity for business growth, and opportunity for business growth, and a serious legal responsibilitya serious legal responsibility

Great way to get growth money for Great way to get growth money for expansionexpansion

Downside – give up controlDownside – give up control Only time company gets moneyOnly time company gets money

Bull and Bear MarketsBull and Bear Markets BullBull: attacks by thrusting horns up : attacks by thrusting horns up

(positive)(positive) Prices rising or expected to risePrices rising or expected to rise Optimistic outlook, investor confidenceOptimistic outlook, investor confidence Can apply to anything that is tradedCan apply to anything that is traded

BearBear: attacks by swiping paw down : attacks by swiping paw down (negative)(negative) Prices falling or expected to fallPrices falling or expected to fall Enter a downturn of 15-20% in multiple indexesEnter a downturn of 15-20% in multiple indexes

Psychological effects & speculationPsychological effects & speculation

DiversifyDiversify

Purchase different investments to Purchase different investments to minimize your risk of loss in the marketminimize your risk of loss in the market

You are not an expert, nor do you have You are not an expert, nor do you have the time to do the research to make the time to do the research to make expert choicesexpert choices

If one or two investments go down, the If one or two investments go down, the chances of all of them tanking are slim if chances of all of them tanking are slim if you have them in different industriesyou have them in different industries

IndexesIndexes Each exchange calculates an index, or Each exchange calculates an index, or

benchmarkbenchmark, based on the activity of its , based on the activity of its member companies' stock prices. member companies' stock prices.

"The market's up" or “the market's down," "The market's up" or “the market's down," refers to the Dow Jones Industrial refers to the Dow Jones Industrial Average. Average. Index composite of 30 Index composite of 30 companies. companies. It is considered a reliable It is considered a reliable indicator of the strength, or weakness, of indicator of the strength, or weakness, of stocks in general.stocks in general.

Mutual Funds VideoMutual Funds Video What is a mutual fund?What is a mutual fund?

Diversification of a portfolio all under Diversification of a portfolio all under one fundone fund

Several businesses to spread riskSeveral businesses to spread risk NOT insured by FDICNOT insured by FDIC NOT guaranteed by banksNOT guaranteed by banks Mutual funds carry risk, including the Mutual funds carry risk, including the

possible loss of principal.possible loss of principal.