which makes more sense? why? to sacrifice and put away $2,000 a year when you are 22 to 33 years...
TRANSCRIPT
Which makes more sense? Why? To sacrifice and put away $2,000 a year
when you are 22 to 33 years old (12 challenging year of saving)
OR To wait until you are more settled in your
job and put away $2,000 a year when you are 34 to 65 years old (32 relatively easy years of saving)
What is the Secret to Success? The Marshmallow test
Ted Talks:Present Self versus Future Self
STOCKS AND BONDS
Chapter 16
Financial Market
Suppose a company wants to raise money so it can invest in a new product or a new manufacturing technique, where does it get the money? Borrow it from a bank Issue a bond Sell or issue stock in the company
What are Stocks?
Stock is a claim on the assets of a corporation that gives the purchaser a share of the corporation
EOC study guide
Perso
nal Finance
#5
What is the Purpose of Stocks?
Stocks serve as a means of linking investors (you) and businesses looking to expand
How do You Make $ From Stocks?
Corporations sell partial ownership to investors who may profit via dividends and capital gains Dividend: payment made to
stockholders based on a company’s profits
Three Reasons to own dividend stock
Capital gains: profit that results from investments into a capital asset such as stocks or bonds, which exceeds the purchase price
Stocks
Rate of Return (ROR) is the amount of return you receive on your investment ROR is a ratio of money gained or
lost on an investment relative to the amount of money invested
EOC study guide
Personal F
inance
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Rate of Return
You buy Google stock on May 7, 2010 for $246. You sell Google stock on May 7, 2015 for $524
Your rate of return is $524-$246/$246= 113%!
EOC study guide
Personal F
inance
#12 contin
ued
Types of Stock
Common Stock: legal claim to a share of a company’s profits If no profits, no dividends, no payments.
These “stockholders” vote for the board members.
Types of Stock
Preferred Stock: a legal claim to ownership (non-voting). Paid first--if there is limited profit, preferred stockholders get paid, common stockholders do not.
Which would you rather own?
When Stock Prices Increase
Stock Split: typically, companies do not like the price of stock to exceed $60 per share, it becomes unattractive to the average investor. (why?) When demand causes the stock price to
rise, companies will “split” the stock and give all current stock holders two stocks for every one share they own.
Investopedia video on Stock Split
Stocks
Where can you buy stocks? A broker will buy them for you through a stock exchange: New York Stock Exchange (NYSE) American Stock Exchange (AMEX) National Association of Securities Dealers
Automated Quotations (NASDAQ)
What is the Dow Jones Industrial Average?
How Much $ Do I Need to Invest?
You can open up an account with a brokerage firm (either with a person or online) by depositing a certain dollar amount into an account Typically for $500 or more Once you open your account you can begin
to trade (buy and sell stock) for $7-10 a trade
Picking Stocks
Don’t know what stocks to pick or don’t want to have to worry about a companies profits and loses? Try a Mutual Fund! Mutual funds are a collection of stocks
that are chosen and managed by a fund manager
On any given day the fund manager may buy and sell different stocks for the fundEOC study guide
Personal Finance
#7
How to read stock tables for dummies
How do you read a stock market page in the newspaper?
Click icon to add picture
Bond Investing
Bonds
A bond is an IOU, or a promise to pay, issued by companies, governments, or government agencies for the purpose of borrowing money. Types of bonds:
Corporate bondsMunicipal bondsTreasury bills, notes and bonds
Top uses for bonds
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Personal Fin
ance
#6
Three Major Components of Bonds
Three major components of bonds Face value is the total amount the
issuer of the bond will repay to the buyer of the bond
Maturity date is the day when the issuer of the bond must pay the buyer of the bond the face value of the bond
Coupon rate is the percentage of the face value that the bondholder receives each year until the bond matures
Bond example
School district gets permission by the population to raise $ for a new school
Public approves, bonds issued & purchased
Cash obtained by district, school built, school district via tax dollars repays bond with yearly interest for 15 or 30 years
Why Buy Bonds?
Buying Bonds from the government Bond investing
BONDS
What if you are presented with the opportunity to buy a bond that will offer interest rates three to four percentage points higher than safer government issues, but the company has not proven to be stable. (it may not be growing rapidly right now, or making a lot of money right now)
Would you buy it?
JUNK BONDS
Junk bonds are offered by companies that are financially unstable and have a high risk of default If the company goes under bondholders
will have to wait in a very long line with the company’s other creditors
Junk bonds typically offer interest rates three to four percentage points higher than safer government issues
JUNK BONDS
Junk bonds
Are you willing to accept the risk?
