Types of Investments

Types of Investments
Stocks
Bonds
Mutual Funds
Real Estate
Savings/Certificates of Deposit
Collectibles

Stocks
An investment that represents
ownership in a company or
corporation.

How Well the Stock

Market is Doing
Overall

3 Basic Indicators
Dow Jones Industrial Average (DOW)
Lists the 30 leading industrial blue chip stocks

Standard and Poors 500 Composite Index

Covers market activity for 500 stocks
More accurate than DOW because it evaluates
a greater variety of stock

National Association of Security Dealers

Automated Quotations (NASDAQ)
Monitors fast moving technology companies
Speculative stocks, show dramatic ups and
downs

Ups and Downs

The term bull market means the market
is doing well because investors are
optimistic about the economy and are
purchasing stocks
The term bear market
means the market is doing
poorly and investors are not
purchasing stocks or selling
stocks already owned

Purchasing Stock

Brokers
A Broker is a person who is licensed
to buy and sell stocks, provide
investment advice, and collect a
commission on each purchase or sale
Purchases stocks on an organized
exchange (stock market)
Over of all stocks are bought and sold
on an organized exchange

Organized Exchanges
Minimum requirements for a stock to
ensure only reputable companies are
used
Each exchange has a limited number
of seats available which brokerage
firms purchase to give them the
legal right to buy and sell stocks on
the exchange

New York Stock Exchange

New York Stock Exchange (NYSE)
Oldest and largest, began in 1792
1,366 seats available
2,800 companies
Average stock price is $33.00
Strict requirements

American Stock Exchange

American Stock Exchange
Began in 1849
2nd largest exchange
Its requirements are not as strict as
NYSE allowing younger, smaller
companies to list
Average stock price is $24.00

Regional Stock Exchanges

Regional Stock Exchanges
Stocks are traded to investors living in a
specific geographical area
Including Boston, Cincinnati, Philadelphia,
Spokane

NASDAQ
National Association of Securities
Dealers Automated Quotations
Stocks are traded in an over the counter
electronic market
4,000 small companies
Company requirements are not as strict

More volatile because companies are

young and new
Average stock price is $11.00

Bonds
A security representing a loan of
money from a lender to a
borrower for a set time period,
which pays a fixed rate of interest.

Mutual Funds
An investment that pools money
from several investors to buy a
particular type of investment,
such as stocks.

Real Estate
An investor buys pieces of
property, such as land or a
building, in hopes of generating a
profit.

Savings/Certificates of
Deposits
A deposit that earns a fixed
interest rate for a specified length
of time.
The longer the time period the
greater the rate of return.
There is a substantial penalty for
early withdrawal.

Collectibles
Unique items that are relatively
rare or highly valued.
Art work
Baseball trading cards
Coins
Automobiles
Antiques

Risk vs. Return

On average, stocks have a high rate of
return
The increase or decrease in the original
purchase price of an investment

Higher rate of return = greater risk

Uncertainty about the outcome of an
investment

Stocks provide portfolio diversification

Money invested in a variety of investment tools

Short-term Investment
Strategies
Buying on margin is where an
investor borrows part of the
money needed to invest in a stock
from a brokerage firm.
There is a 50% margin requirement.
If you want to purchase $2,000
worth of stock you can borrow up to
$1,000 to make the purchase.

Short-term Investment
Strategies
Short selling is where an investor
sells shares of stock that they dont
own with the intent to buy them
back later at a lower price.
Lets use rollerblades as an example.

 Your friend buys new rollerblades for

$80.
You borrow them and sell them for
$80.
The price at the stores has been
lowered to $45.
You buy a new pair for $45 and give
them to your friend.
You made $35!!!

Long-term Investment
Strategies
Diversification is spreading your
assets among different types of
investments to reduce risk.
Dont put all your eggs in one basket.

Long-term Investment
Strategies
Dollar Cost Averaging is buying
an equal amount of the same stock
at equal intervals.
Invest $100 in e-bay every month.
The price you pay for the stock
averages out over time.

Dollar Cost Averaging

One-Time Investment
Amount
Invested

Shares
Share
Price ($) Purchased

$1,000.00

$20.00

50.00

$1,000.00

$20.00

50.00

Dollar-Cost Averaging
Amount
Invested

$100.00
$100.00
$100.00
$100.00
$100.00
$100.00
$100.00
$100.00
$100.00
$100.00
$1,000.00

Shares
Share
Price ($) Purchased

$20.00
$19.50
$19.25
$19.75
$19.20
$18.90
$18.00
$18.60
$19.78
$20.90
$19.39*

5.00
5.13
5.19
5.06
5.21
5.29
5.56
5.38
5.06
4.78
51.66

* Average Share Price

Long-term Investment
Strategies
Buy and hold technique is where
an investor buys stock and holds
on to it for a number of years.
During that time you are paid
dividends and the price of the stock
may go up.

How Can Government

Regulations Protect
Investors?
Regulatory Pyramid
A network of safeguards that
surrounds the securities industry from individual brokerages all the
way up to the U.S. Congress.

Regulatory Pyramid

www.nyse.com

Sources of Investment
Information
Prospectus
A formal written offer to sell
securities that sets forth a plan for a
proposed business enterprise. A
prospectus should contain the facts
that an investor needs to make an
informed decision.

Sources of Investment
Information
Annual report
A document detailing the business
activity of a company over the
previous year, and containing an
income statement, cash flow
statement, and balance sheet.

Sources of Investment
Information
Financial publications
Wall Street Journal
Fortune
Kiplingers Personal Finance

Online information
http://finance.yahoo.com
http://moneycentral.msn.com

How Do You Buy and Sell

Investments?
Full-service broker
Discount broker
Online broker
Investment advisors