InvestingChapter 9

Essentials Of Investing

S p en d & E n joy

S p ecu la tion(E xcess )

R iskyQ u ick P ro fit P o ten tia l

S ys tem atic In ves tm en t(E xcess )

L on g R an g e/R etirem en t

B eg in n in g In ves tm en ts(E xcess )

L ow R isk , D ive rs ifica tion

S avin g s (P u t & Take)S a fe - S ecu rity

Investing

• Means going beyond savings, and planning for the future.

• Making Money with Money.

Some Ways to Invest

• IRA’s – Individual Retirement Acct.• Stocks/Bonds.• Mutual Funds.• Real Estate – buy/sell, rent.

• SAVINGS ACCOUNTS.• Money Market Accounts/Funds – invest in

short-term securities.• Certificates of Deposits (CD).

Sources of Financial Information

• Newspapers (Financial Pages) • Financial Magazines

– Bus. Week, Fortune, Money

• Financial Advisors– Advice based on goals/age/occupation/lifestyle

• Annual Reports– History, data, future growth plans, lawsuits,

competition (req. SEC)

If you invest $1,000 each yearInterest Rate

5 yrs. 10 yrs. 15 yrs. 20 yrs.

5% $5,525 $12,578 $21,578 $33,065

6% 5,637 13,181 23,276 36,786

7% 5,751 13,816 25,129 40,995

8% 5,867 14,487 27,152 45,762

9% 5,985 15,193 29,361 51,160

10% 6,105 15,937 31,772 57,257

11% 6,228 16,722 34,405 64,203

12% 6,353 17,548 37,279 75,052

Rule of 72’s• Determine how long it will take you to

double your money– Take 72 and divide it by the amount of time

you have to save. The number calculated will determine the interest rate you need to double your money in that time period

– Take 72 and divide it by the interest rate you are earning. The number calculated will provide you with the amount of time needed to double your money

NASDAQOTC

• N- National

• A - Association

• of

• S - Securities

• D - Dealers

• A - Automated

• Q - Quotation System

Types of Stocks

• Growth - Reinvests profits into Co.

• Penny - Less than $5 per share

• Blue Chip - Well established Co.

• Income - Consistently pays a dividend

• Cyclical - Up and Down with Economy

• Defensive - Remains stable even during economic decline

Common Vs. PreferredCan only lose what you put in

• COMMON– Vote - policy

decisions - more shares more votes (Proxy)

– Receive Dividends if Co. is doing well

– Paid 2nd

– Risky

• PREFERRED– No voting rights

– Dividends are fixed

– Paid first

– Less Risky

BULL VS. BEAR

• BULL - Is a stock market with rising stock prices over an extended time.

• BEAR - Is a stock market with falling prices over an extended period of time.

Commission

• Front-end – pay commission up front

• Back-end – pay commission when you sell

• No-load – when purchased from mutual fund co., No salespeople

Vocabulary

• Prospectus – how fund operates, distributed by law, co. Must provide

• Trustee – individual that manages assets for someone else

• Dow Jones Industrial Average

Bonds

• Pays interest at maturity.• Face value/par value-amount bond holder is paid

when comes due.• Savings – risk free, $50 – 10,000. Up to $15,000• Corporate – sold thru brokers on open market

just like stocks.• Junk – risky, low investment rating, higher rating

the lower the interest. (Ba/BB)• Municipal – issued by state and local government,

min – $5,000, exempt from Fed. Taxes.

Mutual Funds

• Growth fund – invest in established co. And industries, aggressive –new co. and industries (risky).

• Income fund – consistently pay good dividend (moderate risk).

• Balanced fund – invest in mixture of stocks and bonds (low risk) want income with growth and safety.