economic education for consumers ○ chapter 9 what’s ahead 9.1investing basics 9.2how to invest...
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
WHAT’S AHEAD9.1 Investing Basics9.2 How to Invest in Corporations9.3 How to Invest in Mutual Funds9.4 Research Investments9.5 Retirement and Other Investments
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
LESSON 9.1
Investing BasicsGOALSGOALS►Explain the relationship between risk
and return when investing.►Describe how to evaluate the level of risk
you should accept when investing.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
KEY TERMSKEY TERMS
Investing – Choosing to save in a way that earns income.
Risk – The chance that an investment will decrease in value.
Return – The income you earn on an investment. (Stated in Dollars).
Diversification – Investing in various businesses with different levels of risk.
Rate of Return – The percentage you earn on your investment. (Return/Investment).
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
What Is Investing?►Risk and rate of return►Evaluate your risks►Limit risk through diversification
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
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High
High
Risk
Rate
of
retu
rn
In order to earn a higher return, you must be willing to take more risks.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
How to Make Investment Choices►Your financial situation►Your risk tolerance►Your values
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
Why should you expect an investment with a greater potential return to have more risk?
Why should you consider your financial situation, risk tolerance, and values when choosing investments?
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
Why should you expect an investment with a greater potential return to have more risk?
• Investors demand a higher return for accepting greater risk.
• Organizations that offer investment opportunities must offer higher returns as their risk grows.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
Why should you consider your financial situation, risk tolerance, and values when choosing investments?
• Financial situations determine how much an investor can afford to risk.
• Risk tolerance determines what investments an investor is comfortable making.
• Investing according to values provides satisfaction beyond financial goals.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9LESSON 9.2
How to Invest in CorporationsGOALSGOALS►Describe the ways to purchase different
types of stock. ►Explain the difference between investing
in corporate stocks or corporate bonds.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
KEY TERMSKEY TERMS
corporate stock stockholder stockbroker brokerage firm stock exchange NASDAQ Dividend Capital Gain Capital Loss
dollar cost averaging preferred stock common stock corporate bond junk bond
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
KEY TERMSKEY TERMS corporate stock – a unit of ownership in a
corporation. Stockholder – Investors who own the corporation
because they own shares of its stock. Stockbroker – a person who handles the transfer
of stocks and bonds between buyers and sellers. brokerage firm – a company that specializes in
helping people buy and sell stocks and bonds. stock exchange – where orders to buy or sell stock
are sent and carried out. (example - NYSE) NASDAQ – electronically links brokerage firms and
is the most common way to trade stock.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
Key Terms dollar cost averaging – investing equal
amounts of money at regular intervals. preferred stock – A non-voting share of
company stock that pays a fixed dividend. common stock – A voting share that does
not pay a set dividend. Most stock is common.
corporate bond – Sold by corporations to finance business activities. These are loans – not ownership. Bonds are less risky than stocks and generally pay a smaller return.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
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Dividend – Profit earned by a corporation and distributed to stockholders. Not all companies pay dividends.
Capital Gain – Profit you earn from selling stock at a higher price than you paid for it.
Capital Loss – Amount you lose if you sell your stock at a lower price than you paid for it.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
Stock Classifications► Blue chip stocks – large, well established corporations.► Growth stocks – corporations expected to experience
rapid growth.► Large cap stocks – corporations with a total stock
value of $10 billion or more.► Mid cap stocks – corporations with a total stock value
from $2 billion to $10 billion.► Small cap stocks …less than $2 billion.► Sector stocks – companies that operate in a particular
industry or sector of the economy. ( ex. - technology)► Cyclical and non-cyclical stocks – how close is
company’s success linked to economy► International stocks – corporations located outside
U.S.© 2010 South-Western, Cengage LearningSlide 1515
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
What are the two ways to earn income by purchasing corporate stock?
What is the difference between stock and bonds? Why does this difference matter to you as an investor?
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
What are the two ways to earn income by purchasing corporate stock?
You may receive a return from owning stock if it 1) pays a Dividend or 2)increases in value if you sell your stock (Capital Gain).
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 9
What is the difference between stock and bonds? Why does this difference matter to you as an investor?
• Stocks are ownership, and returns depend on the company’s performance.
• Bonds are loans the company must repay in a specified time frame with a specified interest.
• Because bonds must be paid on time, they are less risky.
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