Types of Investment.ppt
- 1. Types of Investments By Srijit Ghoshal College: IIM Jammu
- 2. TYPES OF INVESTMENTS • Stocks • Bonds • Mutual Funds • Real Estate • Savings/Certificates of Deposit • Collectibles
- 3. STOCKS • An investment that represents ownership in a company or corporation.
- 4. HOW WELL THE STOCK MARKET IS DOING OVERALL
- 5. 3 BASIC INDICATORS • Dow Jones Industrial Average (“DOW”) • Lists the 30 leading industrial blue chip stocks • Standard and Poor’s 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
- 6. 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
- 7. 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 ¾ of all stocks are bought and sold on an organized exchange
- 8. 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
- 9. 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
- 10. AMERICAN STOCK EXCHANGE • American Stock Exchange • Began in 1849 • 2nd largest exchange • It’s requirements are not as strict as NYSE allowing younger, smaller companies to list • Average stock price is $24.00
- 11. REGIONAL STOCK EXCHANGES • Regional Stock Exchanges • Stocks are traded to investors living in a specific geographical area • Including Boston, Cincinnati, Philadelphia, Spokane
- 12. 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
- 13. 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.
- 14. MUTUAL FUNDS • An investment that pools money from several investors to buy a particular type of investment, such as stocks.
- 15. REAL ESTATE • An investor buys pieces of property, such as land or a building, in hopes of generating a profit.
- 16. 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.
- 17. COLLECTIBLES • Unique items that are relatively rare or highly valued. • Art work • Baseball trading cards • Coins • Automobiles • Antiques
- 18. 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
- 20. 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.
- 21. SHORT-TERM INVESTMENT STRATEGIES • Short selling is where an investor sells shares of stock that they don’t own with the intent to buy them back later at a lower price. • Let’s use rollerblades as an example.
- 22. • 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!!!
- 23. LONG-TERM INVESTMENT STRATEGIES • Diversification is spreading your assets among different types of investments to reduce risk. • Don’t put all your eggs in one basket.
- 24. LONG-TERM INVESTMENT STRATEGIES • Dollar Cost Averaging is buying an equal amount of the same stock at equal intervals. • Invest $100 in e-bay every month. The price you pay for the stock averages out over time.
- 25. DOLLAR COST AVERAGING Amount Invested Share Price ($) Shares Purchased $1,000.00 $20.00 50.00 Amount Invested Share Price ($) Shares Purchased $100.00 $20.00 5.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $100.00 $19.50 $19.25 $19.75 $19.20 $18.90 $18.00 $18.60 $19.78 5.13 5.19 5.06 5.21 5.29 5.56 5.38 5.06 $1,000.00 $20.00 50.00 $19.39* 51.66 $100.00 $20.90 4.78 One-Time Investment Dollar-Cost Averaging $1,000.00 * Average Share Price
- 26. 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.
- 27. 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.
- 29. 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.
- 30. 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.
- 31. SOURCES OF INVESTMENT INFORMATION • Financial publications • Wall Street Journal • Fortune • Kiplingers Personal Finance • Online information • http://finance.yahoo.com • http://moneycentral.msn.com
- 32. HOW DO YOU BUY AND SELL INVESTMENTS? • Full-service broker • Discount broker • Online broker • Investment advisors