EXPLORING OUR INVESTMENT OPTIONS Aim: How can we plan for our financial security? Why save or invest? Saving regularly and saving today could add to your economic future! A penny saved is a penny earned. Investments can provide a foundation for your goals over an entire life span The higher the risk, the higher the return. If you have a larger change of losing something, there is more potential financial reward! What is the difference between saving and investing? Savings accounts are used to prepare for your financial future earn interest, allow regular deposits and withdrawals. minimum required deposit is need, fees and interest all vary Investment is acquired for future benefit as well, but there is risk involved! A Game of Risk Financial risk includes the potential to lose OR gain money or property based on the fact that the results are not guaranteed Investors expect to gain bigger rewards because of the risk involved Investments can have little to no risk, or they can carry a very high risk Investment Property, or other possession, acquired for future financial return or benefit Can also be a commitment of time for things like education or job training How can investments pay off? Rate of return: a percentage amount of the return on an investment or a loan Investments can produce wealth and increase your assets in the long run Rule of 72 Compound interest accumulated interest What are different type of investment products? Stocks Mutual funds Bonds Real estate Collectables (antiques, coins, sports cards, gaming cards, comic books, stamps, dolls/figurines, etc) What factors influence investment decisions? Financial long-term goals: how much money one wishes to accumulate over a certain period of time Time factor: how much time money is left invested can influence the type of investment you choose Risk tolerance: how much risk are you willing to accept? Investors make conservative OR aggressive investment decisions I NVESTING FOR THE L ONG -T ERM Aim: Why is a retirement fund essential to your financial future? W HAT IS A RETIREMENT FUND ? A type of monetary investment that is set aside for after you retire Replaces your income Many different companies and careers offer different retirement opportunities for employees Individuals can also start with plans of their own! Mainly set up by govt, insurance company, employers and unions D EFINED C ONTRIBUTION P LANS an employer-sponsored plan with an individual account for each participant. contributions are invested (possibly in the stock market) and the returns are credited to or deducted from the individual's account I NDIVIDUAL RETIREMENT ARRANGEMENTS Individual retirement plan, also known as IRAs Provides tax advantages trust set up for the benefit of taxpayers or their beneficiaries T YPES OF I RAS Traditional IRATraditional IRA contributions are often tax-deductible and withdrawals at retirement are taxed as income may be referred to as a deductible IRA or a non-deductible IRA. Roth IRARoth IRA all transactions within the IRA have no tax impact, and withdrawals are usually tax-free. SEP IRASEP IRA a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employees name SIMPLE IRASIMPLE IRA a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution. similar to a 401(k) plan, but with lower contribution limits and simpler401(k) Self-Directed IRASelf-Directed IRA a self-directed IRA that permits the account holder to make investments on behalf of the retirement plan IRA DETAILSand-Roth-IRAs A 4-0- WHAT PLAN ? 401K: a profit-sharing plan where employees contribute a portion of wages to individual accounts Can defer salary into this account Can have other plans besides just this one Can contribute more to this than an IRA 403B: similar to a 401K, offered through public schools and tax exempt organizations (religious, public health care, etc) Automatic enrollment unless you choose not to have it P ROFIT S HARING P LAN No set amount needs to be contributed Sometime supplements a Pension Plan An employer and employee must come up with a formula to determine the contributions over a set period of time D EFINED B ENEFIT P LAN Also known as a Pension Plan Specifically defines benefits and payment that will be received upon retirement Usually defined in contract or other legal document W HAT ARE SOME CHALLENGES FOR YOUR RETIREMENT FUTURE ? Job tenure and job security Will Social Security be there for you? Do I stay or do I go? &bclid= # H OW DO WE VIEW RETIREMENT ?2001/retirement-planningfinancial/company-information/ameriprise- financial-commercials.aspcommercials/0ap /Viva-Young T HE M ARKET Aim: How does the stock market work? W HAT IS THE STOCK MARKET ( EXCHANGE )? An organization, association or group which maintains a marketplace Securities, options, futures or commodities can be traded W HAT IS A STOCK ? Capital ($) raised by a corporation by issuing shares of ownership Equity: Certificate documenting a proportional share in the corporations assets and profits Shares: any of the equal parts into which a companys capital is divided, entitling owner to proportion of the profits W HAT EXACTLY IS IT THAT YOU BUY ? Stock or shares in companies (ownership) Major stock exchanges include: NYSE (New York Stock Exchange) AMEX (American Stock Exchange) NASDAQ (National Association of Securities Dealers Automated Quotations) System of computers that are linked Actual market places, both in NYC W HAT IS THE B IG B OARD ? NYSE- oldest and largest stock exchange in U.S. Located on Wall Street, and responsible for setting policy, supervising member activities, listing securities, overseeing transfer of member seats and evaluating applicants S HOULD I BUY, OR SELL ? Bear Market : prolonged period of falling prices Bull Market : stock market with a prolonged rise in stock prices Buying and selling is based on volatility of the market (fluctuation in price/how much it swings in price) buy low, sell high S TOCKS ARE A RISK ! Like all investments, profits are not guaranteed However, stocks provide huge rewards for investors TURKEY: a stock that turns out to be a loser, or poor investment W HY DO COMPANIES NEED STOCKS ? Companies need money to grow and expand Companies put their faith in the stock market and buyers/sellers to invest in their company!! H OW DO INVESTORS PROFIT FROM STOCKS ? Dividend : a portion of a companys profits that the firm pays out each period to shareholders (distributed profits) Formula: shares x $dividend Capital gain : profit from selling or transferring assets at a higher price than their initial cost Formula: selling price-purchase price x shares of stock Capital loss: decrease in investment (purchase price is greater than selling price) ALL gains/losses must be reported to the IRS as part of income! W HICH INDIVIDUALS ARE IMPORTANT TO THE STOCK MARKET ? Stockholder (shareholders)- those that own a share of the company Stockbroker- agent (financial consultant) who executes stock & securities transactions for a client Speculator- investor in stocks, anticipating price changes with a hope of making a profit Usually do not have long-term interest in securities or assets that they trade investors- are typically long-term traders W HAT ARE SOME WARNINGS ABOUT THE STOCK MARKET ? Being knowledgeable about specific companies Being aware of your own financial goals and how much risk tolerance you have Know your broker! H OW DOES ONE BUY A STOCK ? Contact a stockbroker, who will receive a fee for their service Over the counter (OTC): trading any stock that is not listed or traded on a national securities exchange or on NASDAQ You can buy shares directly from a company (usually done online after first transaction) You can buy from an individual who has a stock certificate and represents shares in a company W HAT ARE THE BENEFITS OF BEING A SHAREHOLDER ? You have a voice in how a company is managed! You can vote on company plans an elect officers Those with more shares have more power! Mutual funds: funds from many investors pooled together to establish diversified portfolio Shareholders can share at anytime Funds raise $ by selling shares to the public Moderate risk and managed by professionals W ATCHING THE S TOCK M ARKET Aim: How do we monitor investments in the stock market? W HO LOOKS OUT FOR THE INVESTORS ? Securities and Exchange Commission (SEC) - independent agency of our U.S. govt Administers comprehensive legislation governing the securities industry, comprised of 5 members appointed by the President W HAT ARE THE CLASSIFICATIONS OF STOCKS ? Blue chip stock- stock of large, national company with solid record of stable earnings and a high reputation for quality management Growth stocks- investment in a stock that is expected to perform higher than the average stock in the same industry (glamor stock!) Income stock- regular and steadily increasing dividends, lower level of volatility Speculative stock- high risk, are not informed about the possibilities of prices rising or dropping W HAT FACTORS CAN IMPACT THE STOCK MARKET ? The economy Shareholders Stockbrokers The news New products The government W HAT INVESTORS ARE WATCHING The Dow Jones Industrial Average (also known as The Dow) Figures indicating the weighed average value of shares in 30 companies listed in the NYSE at any time W HAT COMPANIES ARE WATCHING The Dow The overall market Growth Income- income from stock which grows earnings/revenue faster than its industry and the overall market! Income usually used for finance more expansion A DVICE W HEN B UYING S TOCKS : Buy low, sell high Only invest in companies with products and services you use (minimize your risk!) Only buy the blue chip stocks! Stay away from technology stocks!!! (biggest source of market strain today) Do your HW: read up on annual reports, consult an advisor, evaluate company earnings, analyze changes in demand of the market! BUYERS BEWARE!! Keep out if you dont know your way- the market crashed in 1929, it can do it again!! O THER EXCHANGE MARKETS Hong Kong Exchange London Stock Exchange Internet, by phone and by mail H OW DOES ONE TRACK THEIR STOCK S PROGRESS ? Reading a stock table!! Can be found online, TV or in the newspaper See handout W HAT IS THE DIFFERENCE BETWEEN PRIMARY AND SECONDARY MARKETS ? Primary- directly from the company, issuing the stock to the buyer Secondary- after initial public offering (NASDAQ, OTC trading, stock exchange) Any purchase through a broker or middle person is considered secondary! W HAT IS THE S&P 500? Stock exchange of 500 publically traded companies in the United States Standard & Poors- also includes non-U.S. based companies Financial services company that publishes analysis on stocks & bonds Differs from NASDAQ and DOW due to diversity and how it weights profits Many people believe this is a closer measure of how the U.S. market truly operates H OW ELSE ARE WE PROTECTED AS INVESTORS ? FINRA (Financial Industry Regulatory Authority) Non-governmental organization that regulates brokerage firms and exchange markets Promote fairness among the market The SEC also regulates this corporation as well Aim: How can we make wise investment choices? W ATCHING Y OUR I NTEREST D IVERSIFICATION Variety of investments in a portfolio, including stocks, bonds, and real estate Goal to reduce risk in a portfolio Portfolio : collection of investments by individual/institution Why diversify your funds? TO REDUCE YOUR RISK! DO NOT PUT YOUR EGGS IN ONE BASKET. T YPES OF P ORTFOLIO I NVESTMENTS Bond : certificate of debt used by govt that offers payment of original investment plus by a specified future date Stocks : capital raised by a corporation by issuing shares of ownership; certificate documenting proportional share in the corporations assets/profits T YPES OF B ONDS U.S. Savings Bonds- nontransferable bond issued by govt, savings cannot be bought or sold except to redeem them from the govt Range from $50 to $10,000 Treasury bond (T-Bond)- long term debt security, interest paid semi-annually Mature in 10 to 30 years Range from $1,000-$1,000,000 Municipal bond (Muni)- long-term, interest-bearing security owned by county, city or state govts with 10 yr + maturity If you have multiple bonds, you do not have to pay income tax on interest T YPES OF I NVESTMENTS FROM BANKS Savings account Money Market Account- savings account that pays variable interest rates depending on current conditions market (short-term) Easily liquidated, high interest rates Certificate of Deposit (CD)- form of time deposit at bank/financial institution Cannot be withdrawn before specific maturity date without interest penalty Small ones purchased by individuals, large are often negotiable (sold/transferred by holders) Treasury Bill (T-Bill)- short-term debt security by U.S. govt with a maturity of one year or less (considered the safest to the U.S. investor) Treasury Notes (T-Note)- govt debt security issued with maturities of 2-10 years, fixed interest (semi- annual) G OV T O PTIONS O PTIMAL O PTIONS !! With your group of 2-3, create a brochure for the Option you picked. Make sure you include key points of that investment opportunity in your brochure Include some key designs/make sure your brochure is appealing Make sure you address why your investment opportunity is a better option than the others that were discussed!