Unit 4Unit 4

Investing and Consumer Protection

Investing and Consumer Protection

I. InvestingI. Investing

A. Investing vs. Saving 1. Investing - putting money to work to

earn a profit 2. Saving - foregoing present spending

for future use 3. Capital Gains - money earned from

buying and selling stock 4. Dividends - part of earnings paid

quarterly to shareholders by check

A. Investing vs. Saving 1. Investing - putting money to work to

earn a profit 2. Saving - foregoing present spending

for future use 3. Capital Gains - money earned from

buying and selling stock 4. Dividends - part of earnings paid

quarterly to shareholders by check

Investing Cont.Investing Cont. 5. Risk vs. Return - higher risk investment,

greater potential return 6. Time value of money - relationship between

time, money and interest -sooner you invest the more time it has to make you

new money Rule of 72 - dividing 72 by the interest rate gives you

the number of years it will take for your money to double

Ex. 72/9%= 8 years

5. Risk vs. Return - higher risk investment, greater potential return

6. Time value of money - relationship between time, money and interest -sooner you invest the more time it has to make you

new money Rule of 72 - dividing 72 by the interest rate gives you

the number of years it will take for your money to double

Ex. 72/9%= 8 years

B. Stock MarketB. Stock Market

B. Stock MarketB. Stock Market1. Common Stock -- shares in a public corporation. Person

has one vote per share owned to determine the company’s B.O.D

1. Classifications:1. Growth -- companies that have a consistent record of

rapid growth and earnings in all conditions.2. Income -- high dividends b/c company chooses to retain

only a small portion of profit. Attractive to investors looking for dividends producers.

3. Value, Countercycle, Cyclical, Speculative, Blue Chip2. Preferred Stock -- Shares with fixed dividends that take

precedence over common stock. Less risky than common stock.

1. No voting rights in the company.

1. Common Stock -- shares in a public corporation. Person has one vote per share owned to determine the company’s B.O.D

1. Classifications:1. Growth -- companies that have a consistent record of

rapid growth and earnings in all conditions.2. Income -- high dividends b/c company chooses to retain

only a small portion of profit. Attractive to investors looking for dividends producers.

3. Value, Countercycle, Cyclical, Speculative, Blue Chip2. Preferred Stock -- Shares with fixed dividends that take

precedence over common stock. Less risky than common stock.

1. No voting rights in the company.

C. Researching StocksC. Researching Stocks1. Book Value -- net worth of the company

1. Assets - Liabilities = Book Value2. Earnings per Share -- How much a company can pay

in dividends and reinvest3. P/E Ratio -- (Price/Earnings) Relationship of price of

one share to annual earnings of the company. 1. Low P/E - High dividends, low risk, slow growth2. High P/E - Means high growth in the future

4. Beta - Measures stocks volatility compared to the overall market

1. Low Beta - Stock is less sensitive to change, good for conservatives.

2. High Beta - Stock is more volatile, greater risk.

1. Book Value -- net worth of the company1. Assets - Liabilities = Book Value

2. Earnings per Share -- How much a company can pay in dividends and reinvest

3. P/E Ratio -- (Price/Earnings) Relationship of price of one share to annual earnings of the company.

1. Low P/E - High dividends, low risk, slow growth2. High P/E - Means high growth in the future

4. Beta - Measures stocks volatility compared to the overall market

1. Low Beta - Stock is less sensitive to change, good for conservatives.

2. High Beta - Stock is more volatile, greater risk.

D. Reading StocksD. Reading Stocks1. Terminology

a) YTD -- Year to Date, % stock has changed since Jan. 1st.

b) 52 Week -- high price and low price over the past year.

c) Stock -- stock symbol, each company has an abbreviated name.

d) DIV - Dividendse) YLD - Yield % -

dividend expressed as a % of the price of the share.

1. Terminologya) YTD -- Year to Date, %

stock has changed since Jan. 1st.

b) 52 Week -- high price and low price over the past year.

c) Stock -- stock symbol, each company has an abbreviated name.

d) DIV - Dividendse) YLD - Yield % -

dividend expressed as a % of the price of the share.

f) VOL - volume, total number of shares traded.

g) High/Low - represent high and low selling price for the day.

h) Close - Price the last share sold for on that day.

i) Net Change - Difference between closing prices from yesterday to today.

f) VOL - volume, total number of shares traded.

g) High/Low - represent high and low selling price for the day.

h) Close - Price the last share sold for on that day.

i) Net Change - Difference between closing prices from yesterday to today.

E. Stock ExchangesE. Stock Exchanges1. NYSE -- New York Stock

Exchange -- oldest and largest. 1,366 seats and over 2,800 companies traded on the exchange.

2. AMEX - American Stock Exchange - 2nd Largest, list some similar companies as NYSE

3. NASDAQ - Over the counter market, stocks not traded on an exchange but are traded by two brokers negotiating the sale. 4,000 US and foreign Companies.

1. NYSE -- New York Stock Exchange -- oldest and largest. 1,366 seats and over 2,800 companies traded on the exchange.

2. AMEX - American Stock Exchange - 2nd Largest, list some similar companies as NYSE

3. NASDAQ - Over the counter market, stocks not traded on an exchange but are traded by two brokers negotiating the sale. 4,000 US and foreign Companies.

F. Stock Market IndicatorsF. Stock Market Indicators1. Dow Jones Industrial Average -- oldest Indicator, lists

ups and downs of 30 NYSE blue chip stocks.2. S&P 500 -- Covers activities of 500 stocks across all

markets.3. NASDAQ -- Monitors tech. stocks and financial

services stocks.4. Bull Market -- Describes the state of the economy

when market is doing well and investors are optimistic about purchasing stocks.

5. Bear Market -- Describes the state of the economy when the market is doing poorly and investors are not confident.

1. Dow Jones Industrial Average -- oldest Indicator, lists ups and downs of 30 NYSE blue chip stocks.

2. S&P 500 -- Covers activities of 500 stocks across all markets.

3. NASDAQ -- Monitors tech. stocks and financial services stocks.

4. Bull Market -- Describes the state of the economy when market is doing well and investors are optimistic about purchasing stocks.

5. Bear Market -- Describes the state of the economy when the market is doing poorly and investors are not confident.

G. Why do stocks change value?G. Why do stocks change value?

1. Change in earnings2. Change in Interest

Rates3. Change in

Executives.4. Media Coverage5. Corporate

Takeovers/Mergers

1. Change in earnings2. Change in Interest

Rates3. Change in

Executives.4. Media Coverage5. Corporate

Takeovers/Mergers

H. Other types of Investments

H. Other types of Investments

1. Mutual Funds -- managed portfolios of stocks, bonds, etc. Buy shares and fund uses money to buy investments for you. Profits returned in dividends.

a) Allows small investors to reduce risk of investing and have professional account management.

b) Balanced funds, Global funds, Growth funds, Income funds, etc…

c) Roth IRA, 401K, 403b -- allows investors to invest in mutual funds tax free for retirement with certain stipulations.

1. Mutual Funds -- managed portfolios of stocks, bonds, etc. Buy shares and fund uses money to buy investments for you. Profits returned in dividends.

a) Allows small investors to reduce risk of investing and have professional account management.

b) Balanced funds, Global funds, Growth funds, Income funds, etc…

c) Roth IRA, 401K, 403b -- allows investors to invest in mutual funds tax free for retirement with certain stipulations.

H. Investments Cont.H. Investments Cont.2. Bonds - IOU certifying you loaned money to

govt. or a corporation. Buyer pays and gets a fixed interest rate for a fixed amount of time. Can collect when it matures at the end of the set time.

a) Corporate bond -- junk bonds, sold to raise moneyb) Municipal bonds -- non-federal gov’t.c) T-Bills/Savings bonds -- safest investment you can

make. US government backs them, and must repay.

2. Bonds - IOU certifying you loaned money to govt. or a corporation. Buyer pays and gets a fixed interest rate for a fixed amount of time. Can collect when it matures at the end of the set time.

a) Corporate bond -- junk bonds, sold to raise moneyb) Municipal bonds -- non-federal gov’t.c) T-Bills/Savings bonds -- safest investment you can

make. US government backs them, and must repay.

H. Investments Cont.H. Investments Cont.3. Real Estate -- land, homes, apartments,

buildings, land, etc…a) People buy real estate in the hopes that it will

increase in value and can resell at a higher price. Also buy to develop and collect rent.

4. Commodities -- Anything for which there is demand, but which is supplied without any difference.

a) Iron, Crude Oil, Coal, Ethanol, Salt, Sugar, Coffee Beans, soybeans, aluminum, rice, wheat, gold and silver

3. Real Estate -- land, homes, apartments, buildings, land, etc…

a) People buy real estate in the hopes that it will increase in value and can resell at a higher price. Also buy to develop and collect rent.

4. Commodities -- Anything for which there is demand, but which is supplied without any difference.

a) Iron, Crude Oil, Coal, Ethanol, Salt, Sugar, Coffee Beans, soybeans, aluminum, rice, wheat, gold and silver

II. Consumer ProtectionII. Consumer Protection

A. InsuranceA. Insurance

A. Insurance -- transferring the risk of a loss from one person to another in exchange for a premium (monthly amount you or your employer pays for your coverage.

A. Insurance -- transferring the risk of a loss from one person to another in exchange for a premium (monthly amount you or your employer pays for your coverage.

A. Insurance Cont.A. Insurance Cont.1. Types of Insurance

a) Property -- Covers items damaged b/c of fire, theft, accident, etc.b) Liability -- Provides benefits payable for those injured on your

property.c) Life -- Provides benefits if death occurs. Can be term, or whole

life.d) Auto -- covers injuries or losses involved in automobile accidents.

a) Ex. Collision, liability, comprehensive, medical payments, etc.e) Home/Renters -- covers home/apt. depreciation, fire, theft,etc.f) Health -- covers health related issues depending on plan

a) Long term care, disability, out patient, in patient, vision, etc.b) Deductible -- amount of money paid up front before insurance kicks in.

1. Types of Insurancea) Property -- Covers items damaged b/c of fire, theft, accident, etc.b) Liability -- Provides benefits payable for those injured on your

property.c) Life -- Provides benefits if death occurs. Can be term, or whole

life.d) Auto -- covers injuries or losses involved in automobile accidents.

a) Ex. Collision, liability, comprehensive, medical payments, etc.e) Home/Renters -- covers home/apt. depreciation, fire, theft,etc.f) Health -- covers health related issues depending on plan

a) Long term care, disability, out patient, in patient, vision, etc.b) Deductible -- amount of money paid up front before insurance kicks in.

B. Identity TheftB. Identity Theft

1. Identity Theft -- When someone uses your personal information without your permission to commit fraud or other crimes. Usually involves SS number, credit cards, etc.

1. Identity Theft -- When someone uses your personal information without your permission to commit fraud or other crimes. Usually involves SS number, credit cards, etc.

B. Identity Theft Cont.B. Identity Theft Cont.

1. Stealing Process --1. Pre-texting or phishing -- thieves pretend

to be your or an institution to gain your personal information.

2. Skimming -- use of a device to steal credit card numbers during process.

3. Mail -- divert billing statements, steal credit apps.

1. Applying for gov’t documents, utilities bills, cell phones in your name.

1. Stealing Process --1. Pre-texting or phishing -- thieves pretend

to be your or an institution to gain your personal information.

2. Skimming -- use of a device to steal credit card numbers during process.

3. Mail -- divert billing statements, steal credit apps.

1. Applying for gov’t documents, utilities bills, cell phones in your name.

B. Identity Theft Cont.B. Identity Theft Cont.1. Resolving your Credit

1. Credit Report -- report containing all of your credit history including loans, credit apps, bankruptcies, personal info, etc.

2. FTC -- Federal Trade Commission -- goal is to protect consumers and markets by eliminating fraud and enforcing antitrust laws.

3. Allowed 2 free credit reports per year1. www.annualcreditreport.com2. www.ftc.gov/freereports3. DO NOT GO TO FREECREDITSCORE.COM!!!!!

1. Resolving your Credit1. Credit Report -- report containing all of your

credit history including loans, credit apps, bankruptcies, personal info, etc.

2. FTC -- Federal Trade Commission -- goal is to protect consumers and markets by eliminating fraud and enforcing antitrust laws.

3. Allowed 2 free credit reports per year1. www.annualcreditreport.com2. www.ftc.gov/freereports3. DO NOT GO TO FREECREDITSCORE.COM!!!!!