Transcript Investing Basics - Muncie Public Library

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We will look at several different aspects of
basic investing. This includes;
Stocks
Mutual Funds
DRIPS (Dividend Reinvesting Programs for
Stocks)
Glossary of Investing Terms
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What are stocks?
When a company issues shares of stock, they
are using the cost of the stock as a type of
“loan” from those who purchase the shares.
When you own a share of stock, you are a part
owner in the company with a claim (however
small it may be) on every asset and every
penny in earnings.
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What does that entitle me to?
Depending on the company, it means
(hopefully) that the company will do well, and
the price of the stock will go up.
It also means that if the company pays a
dividend, that it will pay you back a
percentage of the profits it makes times each
share of stock you own.
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For example, if you own 100 shares of stock
and the dividend is $.60 a share, then you
would be paid $60.00 for owning the stock at
the time the dividend was declared.
Stocks also come in many sizes.
The size of the stock is determined by the
operating capital of the company. For
example..
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A stock is considered to be a nano cap is its
initial capitalization is below 50 million.
A micro cap if it is above 50 million to 300
million.
Mid cap if between 2 billion to 10 billion
Large Cap if above 10 billion to 200 billion and
a Mega cap if it is 200 billion plus.
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How do I buy shares of stock?
There are several different markets that
different companies are listed upon.
The largest in the US is the NYSC which is
located on Wall Street in New York City.
It has a capitalization of 13.39 trillion.
Other large stock exchanges include the
Nasdaq and for commodities,(i.e. live stock,
copper, etc.) the Chicago Board of Trade.
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For most people, buying a share of stock will
require the help of a stock broker.
How can we find a good stock broker?
There are several places to look, one is the
Motley Fool. (Motleyfool.com) On this web site
is a comparison of the larger discount brokers.
Other places to look to help in making a choice
would be Consumer Reports, which ranked
online brokers in its May 2009 issue.
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Mutual Funds are for those who would like to
invest but are not sure what to invest in.
The idea behind mutual funds, is the investor
buys shares in a company that invests most of
the money into shares of stocks that the mutual
fund company believes will appreciate in
value.
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Due to the nature of the investment, the NAV
or Net Asset Value of the mutual fund is set at
the end of each trading day.
It will go up and down just like a stock.
Another feature that the mutual fund owner
should know about is the concept of a “load”
or “no load” fund.
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A “no load” fund does not have a transaction
cost to purchase shares, all of the money
invested is working for the investor. For
example, if you purchase $10,000 worth of a
no-load mutual fund, all $10,000 will be
invested into the fund.
Read more:
http://www.investopedia.com/terms/n/noloadfund.asp#ixzz1rCV3l6TA
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On the other hand, if you buy a load fund that
charges a front-end load (sales commission) of
5%, the amount actually invested in the fund is
only $9,500. If the load is back-ended, it means,
when shares of the fund are sold, the $500 sales
commission comes out of the proceeds. If the
mutual fund is a level-load (12b-1 fee) is 1%, your
fund balance will be charged $100 annually for as
long as you own the fund.
Read more:
http://www.investopedia.com/terms/n/noloadfund.asp#ixzz1rCVedksc
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There are many good places to learn more
about mutual funds.
Two data bases that the MPL has that can help
you are Value Line and Morningstar.
You can find both of them when you look on
the MPL front page and click on the “Research”
link.
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These two data bases are listed alphabetically.
If you are at home, you will need your library
card number and your PIN (personal
Identification number, the last four digits of
your phone number) to log in.
DRIPS (Dividend Reinvestment Plans)
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What are DRIPS?
DRIPS are a type of dividend reinvesting
program that allows the investor to own the
stock directly, and invest as much or as little as
they want at a time.
This is a type of play that looks at the long term
investment horizon 20+ years rather than focus
on yearly gains.
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Among the sites that you can learn about
DRIPS, is one called,
http://www.directinvesting.com/
On the Money Papers web site.
It can be found by typing in the URL listed
above or by Googling The Money Papers
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Most DRIPs allow you to open an account with as little as a single share of
the company's stock. That means that you can afford to open accounts in a
number of companies, thus establishing a diversified portfolio!
Once your account is open, you can build up your holdings by making
specific dollar amount investments. Say you decide to fund your account
with $50 on a regular basis. When the price of the share is low, say $25, your
$50 investment will buy two shares, when it is high, say $100, your $50 buys
only a half a share.
You can contribute to fund your account in this manner for many years. For
many companies, there is no commission or fee when you make such
investments through the plan. You are in complete control of your investing.
You invest what you want, when you want-some companies even allow you
to automatically invest an amount every month! The shares that you buy are
held in your name, not the broker's name ("street name").
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You don't have to save up to invest. DRIPs allow you
to invest as little as $25 or $50-some company
programs even allow investments as small as $10! That
cash investment buys as many shares (or fractions of
shares) as the dollar amount buys based on the current
market price of the shares at the time of the investment.
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One of the better dictionaries of investment
terms can be found at the Chicago Board of
Trade site.
http://www.cmegroup.com/education/glossa
ry.html
Here are some terms that you should know.
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Assets
Everything a company or person owns, including money,
securities, equipment and real estate. Assets include everything
that is owed to the company or person. Assets are listed on a
company's balance sheet or an individual's net worth statement.
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Bear Market
A market in which stock prices are falling.
Bid
The highest price a buyer is willing to pay for a stock. When
combined with the ask price information, it forms the basis of a
stock quote.
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Blue Chip Stocks
Stocks of leading and nationally known companies that offer a record of
continuous dividend payments and other strong investment qualities.
Bonds
Promissory notes issued by a corporation or government to its lenders,
usually with a specified amount of interest for a specified length of time.
Bull Market: A market in which the stocks are rising or going up.
Call Option
An option which gives the holder the right, but not the obligation, to buy
a fixed amount of a certain stock at a specified price within a specified
time. Calls are purchased by investors who expect a price increase.
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Cyclical Stock
A stock of a company in an industry sector that is particularly sensitive to
swings in economic conditions.
Diversification
Limiting investment risk by purchasing different types of securities from
different companies representing different sectors of the economy.
Dividend
The portion of the issuer's equity paid directly to shareholders. It is
generally paid on common or preferred shares. The issuer or its
representative provides the amount, frequency (monthly, quarterly, semiannually, or annually), payable date, and record date. The exchange that
the issue is listed on sets the ex-dividend/distribution (ex-d) date for
entitlement. An issuer is under no legal obligation to pay either preferred
or common dividends.
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Growth Stock
The shares of companies that have enjoyed better-than-average growth
over recent years and are expected to continue their climb.
Inflation
An overall increase in prices for goods and services, usually measured by
the percentage change in the Consumer Price Index.
Mutual Fund
A fund managed by an expert who invests in stocks, bonds, options,
money market instruments or other securities. Mutual fund units can be
purchased through brokers or, in some cases, directly from the mutual
fund company.
Yield
This is the measure of the return on an investment and is shown as a
percentage. A stock yield is calculated by dividing the annual dividend
by the stock's current market price. For example, a stock selling at $50 and
with an annual dividend of $5 per share yields 10%.