Investment
something that you acquire with the goal of making money
stocks
certificates that represent pieces of ownership in a company
Initial public offering (IPO)
when a company chooses to "go public" and has the first sale of stock
Primary market
IPO occurs in this
secondary market
stock sales
- New York Stock Exchange
-NASDAQ
publicly traded
company begins trading on one of the organized stock exchanges
institutional investors
investors who trade large volumes of stocks on behalf of large institutions (pension funds)
stockholders
people who own stock in the company
dividends
distribution of profits
securities and exchange (SEC)
government agency that regulates and monitors the stock market (1935 started to use the stock market)
security
widely used term for investments issued by corporations or governments in which the investor receives proof of ownership
brokeage
firm that provides you access to the stock markets
full service brokerage
firm provides advice and execute your trades
commission
fee for carrying out a transaction
discount brokeage
reduced level of service, lower costs, and often the ability to make your trades yourself online
Bond
promissory note, or a promise to repay a certain amount of money at some point in the future
maturity date
date when the bond expires (matures)
face value
bond's maturity value that is printed on the front of the bond
coupon rate
bond's interest rate
coupon payments
regular interest payments
treasury bonds
issued by the US Treasury to finance the debt of the United States government
federal agency bond
types of bonds that encourage home ownership
municipal bonds
bonds issued by state and local governments to finance large public projects such as water and sewer systems
corporate bonds
bonds issued by large firms
junk bonds
bonds from companies with the highest risk
mutual funds
sell shares to investors in order to collect a pool of money that is then used to buy various investments
diversification
process of investing in multiple investments
Mr. Taylor's def of investment
act of redirecting resources from being used today to create wealth or benefit in the future; use of assests
Why invest
- You should save a cash reserve that is placed in liquid investments
- These include checking accounts, certificates of deposit (CDs) , and savings accounts
- This is money that you should use for emergencies or unexpected expenses
- Highly liquid, lower
Investing in Stocks
- If a company has issued 100 shares of stock that represents the entire ownership of the firm, then each share of stock would be equivalent to 1 percent of the firm's value
- Companies, such as Apple, have issued millions of shares
- Stock ownership also
Stock exchange
- Companies issue and sell stock as a way to raise money for business operations, expansion, and other needs.
- This initial sale is when the company receives money (shares)
- Later, the shares may be bought and sold by many different investors
- The tran
The Behavior of Investors
- There are many types of investors who trade stocks
- Individual investors are well represented in the stock market
- Investors trade stocks to make a profit
Most investors attempt to buy a stock at a low price with the expectation of selling it later at
The behaviors of investors
Keep in mind that the stock market can go up or down
- "Bull market" is a term used for markets that are treading upward
- "Bear market" is a term for markets that are trending down
- Bull and Bear are examples of some common jargon you hear investors use
Examples of Stock Transaction
- Buying or selling stocks will require you to open an account at a brokerage.
- You can open an account at one of many full service brokerage firms
- Such firms offer a high level of service and charge customers a commission
- Some investors decide to go
Investing in Bonds
- Many investors place some of their money in bonds
- Companies, nonprofit organizations, and government agencies issue bonds as a way of taking a loan
- Investors buy the bonds, effectively lending money to the bond issuer
- In return, the investor earns
How Bond Work
- Each bond has a face value and a stated rate of interest
- This will be paid annually to the bondholder until the bond expires
- Bonds have maturity dates ranging from five to thirty years
- Bonds offer investors more than one way to make money
- Bondho
Types of Bonds
- Treasury bonds
- Municipal bonds
- Federal agency bonds
- Corporate bonds
- Treasury bonds present no default risk since the federal government backs them
- There is an active secondary market where investors can sell
- Treasury bonds prior to maturity
Buying Bonds
- Investors can buy and trade bonds in much the same way they buy stocks
- They may use a broker, including discount brokers to arrange transactions
- Investors can also buy treasury bonds directly from www.treasurydirect.gov
Mutual Funds
- another investment option
- A team of professional fund managers oversee these investments
- The shareholders see an increase or decrease in the value of their shares in the mutual fund based on the overall performance of the fund's investments.
- Mutua
Other ways of investing: Real Esate
Many people have used real estate as an investment
- Housing values move up and down over time depending on the supply and demand for homes in an area
- Investing in real estate offers tax benefits, or the ability to take advantage of rules in the tax cod
financial system
network of structures and mechanism that allows the transfer of money between savers and borrowers
financial asset
claim on the property or income of a borrower
financial intermediary
institution that helps channel funds from savers to borrowers
mutual fund
organization that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
hedge fund
private investment organization that employs risky strategies that often made huge profits for investors
diversification
strategy of spreading out investment to reduce risk
portfolio
collection of financial assets
prospectus
investment report that provides information to potential investors
return
money an investor recieves above and beyond the sum of money initially invested
coupon rate
interest rate that a bond issuer will pay to the bondholder
maturity
time at which payment to a bondholder is due
per value
bond's stated value, to be paid to the bondholder at maturity
yield
annual rate of return on a bond if the bond is held to maturity
savings bond
low-denomination issued by the united states government
inflation- indexed bond
bond that protects the investor against inflation by its linkage to an index of inflation
municipal bond
bond issued by a state or local government or a municipality to finance a public project
corporate bond
bond issued by a corporation to help raise money for expansion
junk bond
bond with high risk and potentially high yield
capital market
market in which money is lent for periods longer than a year
money market
market in which money is lent for periods of one year or less
primary market
market for selling financial assets than can be redeemed only by the original holder
secondary market
market for reselling financial assets
stock
portion of a stock
capital gain
difference between the selling price and purchase price that results in a financial gain for the seller
capital loss
difference between the selling price and the purchase price that results in a financial loss for the seller
stock split
division of each single share of a company's stock into more than one share
stockbroker
person who links buyers and sellers of stock
brokerage firm
business that specializes in trading stocks
stock exchange
market for buying and selling stock
futures
contracts to buy or sell commodities at a particular date in the future at a price specified today
options
contracts that give investors the right to buy or sell stock and other financial assets at a particular price until a specified future date
call option
contract for buying stock at a particular price until a specified future date
put option
contract for selling stock at a particular price until a specified future date
bull market
steady rise in the stock market over a period of time
bear market
steady drop or stagnation in the stock market over a period of time
speculation
practice of making high-risk investments with borrowed money in hopes of getting a big return
principles in action: saving and investing
- savings will grow with almost no risk to the principle
- properly timed investment can bring a much greater reward than the same money put away in savings so investment badly placed wished you never put it in the bank
investing and free enterprise
- essential to part of the enterprise system= promotes economic growth and contributes to a nation's wealth plan
- for an investment to take place, there has to be a financial system
- as a saver, you may not want to invest your entire life savings in a s
financial assets
- when people save they are lending funds to others
- savers obtain a document that confirms their purchase or deposit: monthly statements or bond certificates etc.
- documents represent claims on these property or income of the borrower= proof in court
-
financial intermediaries
- finance companies collect information when credit applications are filled out = required
- save money and time for the people who are looking for the information
- savings account for immediate use, low interest rates, liquid, low return
- CD higher int
principals in action: bonds and other financial assets
- bonds= sold by the government or corporations to finance projects , offer higher return than savings, riskier
- loans, IOUs, debt that the seller or issuer must repay to an investor
- pay investor a fixed amount of interest at regular intervals for a sp
t-bills
- state treasury department= safer investment
- need to pay inflation for bonds
municipal bonds para
- gov. has to pay for it but pay them a little bit of money
corporate bond para
- no tax base and riskier
- need to rely on sales of goods to get interest
- these bonds watched closely by sec