INVESTMENTS 101INVESTMENTS 101 STOCK MARKET SUMMARYSTOCK MARKET SUMMARY

What is an INVESTMENT?What is an INVESTMENT? Short term sacrifice long term gainShort term sacrifice long term gain HISTORY- HISTORY- Stock Market Crash (1929) resulted Stock Market Crash (1929) resulted

in regulations of banks GSA in 1933.in regulations of banks GSA in 1933. Deregulation began in 1999Deregulation began in 1999

INVESTMENTSINVESTMENTS

Why do people invest?Why do people invest?

Wealth accumulationWealth accumulation Comfortable retirementComfortable retirement Maintain purchasing powerMaintain purchasing power

Factors of INVESTINGFactors of INVESTING

RISK/ REWARD- the higher the risk, RISK/ REWARD- the higher the risk, the higher the potential rewardthe higher the potential reward

Time Factor- length of time (short Time Factor- length of time (short term vs long term)term vs long term)

BANK INVESTMENTSBANK INVESTMENTS

SavingsSavings

Money MarketsMoney Markets

CD (Certificate of Deposit)CD (Certificate of Deposit)

STOCK MARKETSTOCK MARKETFundamentals of InvestingFundamentals of Investing

2 Main Types:2 Main Types:

Stocks & BondsStocks & Bonds

How do companies finance How do companies finance business activities?business activities?

By issuing:By issuing: Stocks Stocks (Equities)(Equities)

• Shares of stock represent ownership Shares of stock represent ownership interest in companyinterest in company

• Shareholders participate in profits of Shareholders participate in profits of company through growth in value of company through growth in value of stockstock

Stocks- 3 TypesStocks- 3 Types Preferred Stock- Stocks with priority and Preferred Stock- Stocks with priority and

preference.preference.

Common Stock- Most stocks are common Common Stock- Most stocks are common unless specified otherwise. Prices changes unless specified otherwise. Prices changes with the market on a constant daily with the market on a constant daily variation.variation.

Treasury Stock- Company issued stock to Treasury Stock- Company issued stock to employees usually in retirement plans employees usually in retirement plans (internally held shares of the company’s (internally held shares of the company’s stock).stock).

Companies also issue…Companies also issue…

Bonds (Fixed Income)Bonds (Fixed Income)• The purchaser of a bond is lending money to The purchaser of a bond is lending money to

the company at a set interest rate specified at the company at a set interest rate specified at the time of purchasethe time of purchase

• Ownership of a bond makes them a creditor of Ownership of a bond makes them a creditor of the companythe company

• If a company bankrupts due to financial If a company bankrupts due to financial difficulty, bond holders have priority claims on difficulty, bond holders have priority claims on assets before stock holdersassets before stock holders

Bonds- 3 TypesBonds- 3 Types

Government/ Govt backed- Government/ Govt backed- Government issued bonds or secured Government issued bonds or secured by the government (FEDERAL GOVT)by the government (FEDERAL GOVT)

Municipal- Local government issued Municipal- Local government issued bonds (Example- School bonds)bonds (Example- School bonds)

Corporate- Company issued bondsCorporate- Company issued bonds

In what do people generally invest?In what do people generally invest?

StocksStocks

BondsBonds

Mutual FundsMutual Funds

Mutual Fund?!?Mutual Fund?!?

What is a Mutual Fund?What is a Mutual Fund?

Investors pool their money together Investors pool their money together into a fund, a “mutual fund”into a fund, a “mutual fund”

A professional money management A professional money management team is hired to manage the fundteam is hired to manage the fund

The management team decides The management team decides which stocks and/or bonds to buy which stocks and/or bonds to buy and sell and whenand sell and when

POOL OF FUNDSPOOL OF FUNDS

WHY Mutual Funds are popular?WHY Mutual Funds are popular?

By design mutual funds are less risky than By design mutual funds are less risky than individual stocks and even bonds because individual stocks and even bonds because of DIVERSIFICATION.of DIVERSIFICATION.

You can purchase multiple stocks and You can purchase multiple stocks and bonds to spread out the risk.bonds to spread out the risk.

Mutual funds are a very popular way for Mutual funds are a very popular way for people to invest due to their features and people to invest due to their features and benefitsbenefits

OTHER INVESTMENTSOTHER INVESTMENTS

AnnuitiesAnnuities Options- Derivatives of StockOptions- Derivatives of Stock

• Calls-Calls-• Puts-Puts-

Foreign Exchange (FOREX)Foreign Exchange (FOREX) Commodities-Commodities-

Saving for retirementSaving for retirement

Saving for retirement is the primary Saving for retirement is the primary reason most people investreason most people invest

RETIREMENT PLANS RETIREMENT PLANS • IRA- Individual Retirement Plan (Tax IRA- Individual Retirement Plan (Tax

Deferred Earnings)Deferred Earnings)• ROTH IRA- Tax Free EarningsROTH IRA- Tax Free Earnings• 401k- Company Sponsored Plan401k- Company Sponsored Plan

THE MARKETTHE MARKET

INDEX-INDEX-• DJIA-DJIA-• S&P 500S&P 500

MARKETS-MARKETS-

NYSE-NYSE-

NASDAQ-NASDAQ-

Careers in the investment industryCareers in the investment industry

Financial AdvisorFinancial Advisor Financial AnalystFinancial Analyst Portfolio ManagerPortfolio Manager Investment BankerInvestment Banker

THE ENDTHE END