TRUE OR FALSE? Jessica started saving $50 per month when he turned 18, which Beth started saving $100 per month when she turned 24. Both earn 6% on their money. Beth will have more money by the time they both reach 30. Credit card A has an interest rate of 12%, and credit card B has a rate of 16%. If Chris is going to leave a balance of $1,000 on his card, card A is the better deal. A dollar in the future is worth more than a dollar today. The higher the interest rate, the less time it takes to reach a savings goal. From a business perspective, its good business to accelerate income and delay paying expenses. The more time you have, the smaller the deposits you need to make a reach a financial goal. The more time you have, the smaller the deposits you need to make to reach a financial goal. The smaller the down payment on a car, the less interest the owner pays for a car loan. INTRO TO INVESTMENTS SAVING VS. INVESTING Savings is the portion of current income not spent on consumption. Investing is the purchase of assets with the goal of increasing future income. Risk The chance that the value of an investment will decrease Return The profit or yield from an investment Liquidity The ability of an investment to be converted into cash quickly without loss of value RISK, RETURN, AND LIQUIDITY Savings Low Risk Low Return High Liquidity Investments High Risk High Return Low Liquidity INFLATION, SAVINGS, AND INVESTMENTS Today, a large soft drink at most places costs $1.00. You buy the soft drink, but also decide to save some money for the future as well. You put a dollar in your savings account, where it earns 5%. One year later, the dollar in your savings account is worth $1.05. You take the money out and visit your favorite convenience store, hoping to buy another beverage. Unfortunately, drinks now cost $1.10. The point? Inflation can work against your money. You need to learn to invest wisely, following the rate of inflation, and make sure your investment rates are higher than those of inflation. TIME VALUE OF MONEY A dollar in hand today is worth more than a dollar promised at some future time. FUTURE VALUE Refers to the amount of money to which an investment will grow over a finite period of time at a given interest rate. Future value of the cash value of an investment at a particular time in the future. Respond to this statement on your notes and then discuss it with your neighbor. How does it relate to future value? You can always make more money, but you cant make more time. CREATE AN ANALOGY Investing is like ___________________ Develop at least three supporting reasons for your comparison, and create a visual representation of your analogy. TYPES OF INVESTMENTS Stocks Bonds Mutual Funds Real Estate Savings/Certificates of Deposit Collectibles STOCKS An investment that represents ownership in a company or corporation. How well is the stock market doing? Basic Indicators Dow Jones Industrial Average DOW Lists the 30 leading industrial blue chip stocks Standard and Poors 500 Composite Index Covers market activity for 500 stocks More accurate than DOW because it evaluates a greater variety of stock DOW JONES INDUSTRIAL AVERAGE Based in Atlanta, I sell 3 trillion ounces of beverages each year and plan to increase that number. I cater to the do-it-yourself consumer. Im the 2 nd largest retailer in the U.S., 3 rd in the world, and I like to sponsor Olympic teams. My spokesman is a big clown. Ive made and sold everything from light bulbs to dishwashers and aircraft engines. I even bought NBC. I was founded in Some of my 250 plus brands are Tide, Crest, Folgers, Mr. Clean, Cover Girl, Ivory, Pepto-Bismol, Pantene, Pampers, and Bounty. Ive made a lot of money since 1923 with a couple of mice, a few ducks, and ABCbroadcasting. Founded in Arkansas, I employed more than a million people in more than four thousand superstores around the world. Dont leave home without me. Known mostly for my software, Im one of the most valuable companies on earth. I was founded in Some of my best-known brands include Band-Aids, Tylenol, Motrin, Neutrogena, Mylanta, Reach and Acuvue. I design and market mobile communication devices and sell software, services, and applications. My logo is a popular fruit. UPS AND DOWNS The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned HOW MUCH DO YOU KNOW ABOUT THE STOCK MARKET? DOUBLE DOWN? 1. Stocks are items found in the storeroom of a grocery store. 2. Only rich people invest in the stock market. 3. Most stocks on the stock market are sold by the United States Government 4. If the stock market goes up 30% on year, I will fall by 30% in the next year. DOUBLE DOWN? 5. Any stock that goes up in price must eventually come back down. 6. Bears, Bulls, and Pigs are found in the stock market. 7. Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U.S. government. 8. Stock markets are open on business days around the clock, around the world. DOUBLE DOWN? 9. Sometimes companies buy their own stocks on the stock market. 10. It is hard to buy a good sock today because all the good ones have already been purchased. 11. Buying stocks is a good way to make money. 12. Corporations sell new issues of stock on the New York Stock Exchange. DOUBLE DOWN? 13. Insider stock trading means that trading stocks takes place inside a building. 14. People can buy stocks on the internet. 15. When the stock market goes up, it causes the economy to grow. PURCHASING STOCK Brokers: a person who is licensed to buy and sell stocks, provide investment advice, and collect a commission on each purchase or sale Purchase stocks on an organized exchange (stock market) Over of all stocks are bought and sold on an organized exchange Organized Exchanges Minimum requirements for a stock to ensure only reputable companies are used Each exchange has a limited number of seats available which brokerage firms purchase to give them the legal right to buy and sell stocks on the exchange NEW YORK STOCK EXCHANGE (NYSE) Oldest and largest, began in ,366 seats available 2,800 companies Average stock price is $33.00 Strict requirements AMERICAN STOCK EXCHANGE Began in nd largest exchange Its requirements are not as strict as NYSE allowing younger, smaller companies to list Average stock price is $24.00 REGIONAL STOCK EXCHANGES Stocks are traded to investors living in a specific geographical area Including Boston, Cincinnati, Philadelphia, Spokane NASDAQ: NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS Stocks are traded in an over-the-counter electronic market 4,000 small companies Company requirements are not as strict More volatile because companies are young and new Average stock price is $11.00 classification-of-stocksstockclassify.asp BONDS A debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a fixed interest rate. Typically low-risk investments and good for short- term investments Companies and governments issue bonds to fund their day- to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period f time to the issuer. The indebted entity (issuer) issues a bond that contractually states the interest rate (coupon) that will be paid and the time at which the loan funds (bond principal) must be returned (maturity date) Because fixed-rate coupon bonds will pay the same percentage of its face value over time, the market price of the bond will fluctuate as that coupon becomes desirable or undesirable given prevailing interest rates at a given moment in time. Because of this mechanism, bond prices move inversely with interest rates. CHARACTERISTICS OF BONDS Face value is the money amount the bond will be worth at its maturity, and is also the reference amount the bond issuer uses when calculating interest payments Coupon rate is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage Coupon dates are the dates on which the bond issuer will make interest payments, typically annually or semi-annually Maturity date is the date on which the bond will mature and the bond issuer will pay the bond holder the face value of the bond Issue price is the price at which the bond issuer originally sells the bond. A $1,000 bond paying 7% a year has a $70 coupon. Expressed another way, its coupon rate is 7%. MUTUAL FUNDS An investment that pools money from several investors to buy a particular type of investment, such as stocks Open-ended investments that are professionally managed and consist of a variety of investment instruments. They are a long-term investment. REAL ESTATE An investor buys pieces of property, such as land or a building, in hopes of generating a profit. Long-term investment. SAVINGS/CERTIFICATES OF DEPOSIT A deposit that earns a fixed interest rate for a specific length of time The longer the time period the greater the rate of return There is a substantial penalty for early withdrawal. COLLECTIBLES Unique items that are relatively rare or highly valued Art work Baseball trading cards Coins Automobiles Antiques 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 TITLE AND CONTENT LAYOUT WITH CHART PORTFOLIO A collection of securitiessuch as stocks, bonds, mutual funds, and real estate that an individual investor owns. FACTORS Ageinvestors with more time to invest can tolerate the market going up and down Risk ToleranceComfort level of the investor to deal with ups and downs Investment Goalswhat the investor wants to achieve with the money and when 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 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