Personal Finance Investment Fundamentals Agenda Investment fundamentals Stocks

Personal Finance: Investment Fundamentals

Agenda • Investment fundamentals • Stocks • Bonds • Mutual funds

Investment fundamentals • • What is investing? • Making money from personal savings Where do I get the extra money to invest? • • • 1. Break a bad-habit 2. participate in an employers retirement plan 3. Cut back on entertainment and food 4. Automatic savings 5. Part-time job – slide 1

Investment fundamentals - slide 2 • If someone smokes 4 packs of cigarettes per week at $6 per pack, cutting the habit in half would save how much per month? Per year? • If someone visits the bar 2 times per week and spends $25 per visit, cutting back to one visit per week would save how much per month? Per year?

Investment fundamentals • Common investment terms: • • Securities Stocks Bonds Portfolio Interest Capital gain Yield (rate of return)

Diversification –slide 1 • Random risk vs Diversification • Random risk – owning one or few investments • • High risk Diversification – spreading money through several investment opportunities • Reduced risk

Diversification – slide 2

Diversification Averages out an investor’s return

Asset Allocation –slide 1 • Asset Allocation • Form of diversification in which the investor decides on the proportions of the investment portfolio that will be devoted to various assets.

Asset Allocation –slide 2 • A portfolio should be a mix of: • 1) Stocks or stock mutual funds (equities) • • 2) Bonds (debt) • • Highest risk, highest yield Low risk, low/moderate yield 3) Cash or cash equivalents (such as Treasury Securities) • lowest risk, lowest yield

Asset Allocation – pie charts

Asset Allocation: Rebalancing Assets • Should rebalance asset allocations every 5 -10 years!!

Asset Allocation • Asset Allocation Rules of Thumb: • The percent to invest in equities is 110 - (age) x 1. 25 • If you are 40 years old, here is the formula: • 110 -40*1. 25= % to invest in stocks • 87. 5%

Stocks • What is a stock? • Part ownership of a company • What do stockholders typically expect? • • 1. Cash dividends 2. Value of stock to increase over time

Stocks – Purchasing Basic • Here a some basic principles for purchasing stocks: • 1. Timing, timing!!!! • • 2. Understand your company • • • Buy at low prices, sell high at high prices Research your company Stock performance history 3. Be aware of economic trends

Purchasing Stocks • Where can I research stocks: • • • Search engines (Yahoo Finance, Google) Big Newspapers (New York Times, Wall Street Journal) Link to Market. Watch website Review Security Market Indexes Company Annual Reports – slide 1

Purchasing stocks • Let’s research a stock: • Market Watch. com - Link to Market. Watch website – slide 2

Screenshot of Money Market Watch for Mc. Donald's Stock

Purchasing Stocks – Market Indexes • Make sure to look at Security Market Indexes • DOW Jones Industrial (most widely reported of all indexes) • • S&P 500 Index (Standard and Poor’s) • • 65 top stocks in industrial, transportation, and utility companies Top 500 companies in US NASDAQ Index • Includes virtually ever US stock

Purchasing Stocks – where? • Where can I purchase stocks? • 1. Discount brokers • • 2. Online Brokers • • Fidelity, TD Ameritrade, Charles Schwab, USSA Brokerage, Vanguard E*Trade, Scott Trade 3. Full service Brokerage Firms • Edward Jones, Wells Fargo, Morgan Stanley, UBS, T. Rowe Price

Bonds • Investment grade • Reasonably certain principle and interest will be paid • Speculative grade (junk bonds) • Riskier than investment grade, but better earning potential

Bond Ratings

Bank Credit Ratings

Country Credit Ratings by Moody’s, S & P, and Fitch

Bonds • – types Types of bonds: • • • 1. Corporate Bonds • State law requires corporations pay bond payments on time, a given priority over other financial obligations 2. Government bonds • Very safe, high quality 3. Municipal bonds • • Tax-free on interest for federal returns!! Lower interest rates, but good overall returns due to tax-exempt status

Government Bonds • T-bills, notes or bonds • Treasury Inflation-Protected Securities (TIPS) • Savings Bonds • • Series I Bonds Series EE Savings bonds

Purchasing Bonds • Where can I buy bonds? • Corporate: Link to a website to buy and sell bonds, Link to a website to buy bonds • Government: banks, brokers or direct from Treasury • Link to a website to buy treasury bonds

Mutual Funds – slide 1 • What are a mutual funds? • An investment program that pools funds from shareholders and invests in a diversified portfolio by professional investment managers

Mutual Funds – slide 2 What are the advantages to owning mutual funds? • Diversified investments • Affordable • Professionally managed • Liquidity • Low transaction costs • Uncomplicated investment choices

Mutual funds • 2 common objectives of Mutual funds • • 1. Income 2. Growth –slide 3

Mutual Funds • Common type’s of growth funds: • • 1. Growth 2. Value 3. Aggressive 4. Specific • • Large-cap; mid-cap; small-cap Sector Funds Global or international funds Index - slide 4

Mutual funds • Where do I invest in a mutual fund? • • • Funds companies Retirement plans Brokers, financial planners – final slide

Retirement Saving • Social Security retirement benefits • Supplemental retirement income

Questions • Robert Caldwell • • • South Omaha Campus, ITC 100 402 -738 -4771 rcaldwell 11@mccneb. edu

Additional Information

Additional Information 2