Transcript Long term investing - Home - Staunton River High School

Investing in stocks
Buying and selling stock
Buying bonds
Stocks vs. bonds
Mutual Funds
Annuities
Retirement Savings Options
Real Estate Investments
 Stock - a certificate of ownership that
can be purchased, sold, and traded.
 Dividend - a portion of corporation’s
earnings that is distributed to its
shareholders.
 Broker - an individual that facilitates
the purchase or sale of assets
associated with investments.
 Financial Advisors
 Financial Advisors services
 Calculate annual stocks
 “Discretionary authority” is an
investors right to choose where their
funds are allocated and is basically
their right to control their
investments.
 Investing in stock has the long-term
potential for bringing in higher
returns.
 However, the person investing in
stock must be willing to wait for the
returns for several years.
 Broker
 Make recommendations
 Don’t give detail financial info
 Paid commission when securities
are bought or sold
 Check with state securities
regulator or FINRA to find out
proper licensing and any previous
complaints
 Financial Advisors receive
commission off stocks sold.
 Charge by fee, percentage of asset,
commission from other companies
 Registered with either the SEC or
state security
 Form ADV
 Ask a stock broker about his
credentials:
 Training or experience?
 Investment philosophy?
 Describe your typical client?
 How do you get paid?
 Commission?
 Percentage?
 Paid more for selling from your
own firm?
 Financial Planner
 Full plan
 Full financial interest
 Not
 Full-service broker
 Discount broker
 accountant
 Mark has never invested before and
is not quite sure where to start. He
knows that he wants to build up
investments for future projects such
as retirement, but he is not sure how
to navigate investment in light of his
existing debts. Recommend an
appropriate financial professional for
Mark.
 120 shares
 Dividend $5.78 per share
 Yearly dividend = $4.15
 $160.02 annual dividend
 114 shares
 Liz owns stock in Nar Heating/Cooling
and Cilla Shipping. She owns 120 more
shares of Cilla Shipping than she does of
Nar Heating/Cooling.
 Nar Heating/Cooling pays a yearly
dividend of $5.78 per share, and Cilla
Shipping pays a yearly dividend of $4.15
per share. If Liz receives $1630.02 in
dividends annually, how many shares of
Nar Heating/Cooling does she own?
 Stock market
 Market trend - the tendency of the
financial market to move in a given
direction based on local and global
factors.
 Commission - fee rendered either as
fixed amount or based on a % of the
total transaction.
 Market value = $$$
 Net Proceeds
 Market index - a statistical number
that measures the change of assets
sold on the open market.
 Yield % - The % of the stock price
offered as a dividend
 Catherine bought 355 shares of
Trochel Office Supplies at $31.29 per
share. Several months later, the price
went up and she sold them at $49.88
per share. How much profit did
Catherine make?
a$28,815.35
.
b$17,707.40
.
c$6,599.45
.
d$11,107.95
.
 You want to invest some extra money
by purchasing some stocks, but you
do not know which company is a
good investment choice. What type
of broker should you look for to
assist you in purchasing stocks?
 A regular stock broker is a better
choice, because they do research
and help you make an informed
decision. A discount broker only
brokers trades and buying and
selling of stocks;
 “buy low, sell high”
 The way to make profit in buying
and selling stocks is to buy when
the price of a stock is low and sell
the stock after its price goes up.
52 wk High
52 wk Low
Symbol
Div.
Close
Net Change
122.86
64.77
ENM
3.45
99.14
4.74
If the lowest price in the past year occurred 48 days ago, find the
approximate average change per day since then.
a.
$4.74
b.
$0.72
c.
$0.49
d.
$1.34
 Bond- Certificate of debt that gov.
organizations in the private sectors
use to raise capital.
 Face value- amount or redemption of
a bond
 Maturity date- predefined date that
indicates when a bond is to be paid
back to the present owner.
 Gov. Bond- bond that is issued by the
federal government.
 Municipal Bond- a bond that is
issued by state or local governments
 Corporate Bond- a bond that is
issued by a company in the private
sector.
 Corporate bond
 Issued by corporations
 Risk varies depending on
corporation stability
 Municipal bonds
 Issued by state and governments
 Risk varies, interest is tax exempt
 Treasury bonds
 Issued by government
 Safe investment, low interest rate
 a bond with a higher interest rate
often considered a higher risk
investment
 Secure investment
 Put money into bonds
 Higher chance of return
 Higher the risk the higher the
reward
 long-term bond vs. short-term bond
 While long-term bonds have a lot
more risks associated with them,
they have the potential to bring in
higher returns for the initial
investment.
 Frisco city bonds are selling at
96.075. What is the price of one of
these $1,000 bonds? Are these
bonds selling at a discount or a
premium?
 (1,000)(0,96075)=
 $960.75 (discount)
 Calculating the price of bonds
 Market value > par value
 “Premium”
 Market < par value
 Discount
 Rockdale County’s $500 bonds
twelve at 77.447 each




(500)(0.79447)=
397.24
(397.24) (12)=
$4766.83
 Understand how much bonds are
and how to calculate the amount
of each bond
 Finding the amount:
 Grandin Power Company’s $1,000,
six at 106.292 each.
 (1.06292)(1000)=
 $1062.92
 1062.92(6) =
 $6377.52 (premium)
 Why does government issue only
bonds, while companies issue both
stocks and bonds?
 Stock in a company gives the
holder a part in ownership of the
company, are able to vote on big
decisions, and the value can go up
and down.
 largest difference in stocks and
bonds
 Stocks are a share of ownership in
a company and give the
stockholder voting rights, while
bonds are essentially lending a
company or government money.
 Stock
 Bond
 Risk- is quantitative/qualitative
measure that examines the stability
of an investment versus the stated
returns of the investment
 Yield is the income or profit from
transactions or investments.
 Income – a financial gain through the
sale or trade of assets.
 Yield - the income or profit from
transactions or investments.
 Why does gov. issue bonds, while
companies issue both stocks and bonds.
 Stock in a company gives the holder a
part in ownership of the company,
are able to vote on big decisions, and
the value can go up and down.
 However, the people of the
government already vote on
happenings in the government and
inherently have ownership of the
government.
 What is the largest difference in stocks
and bonds?
 Stocks are a share of ownership in a
company and give the stockholder
voting rights.
 bonds are essentially lending a
company or government money.
 Annual yield = Annual Dividend/
Total cost of stock + commission
 258 * 11.45
 (258*73.96)+ 1340.75 (commission)
 0.1446
 Say that your broker charges you a
commission of $1,340.75 for your
purchase of 258 shares of stock in
Ergar Appliances.
 If Ergar Appliances has a list price of
$73.96 and pays a dividend of $11.45
per share, what is your annual yield?
 Bonds 7 (500*0.95626) =
 $3,346.91
 Bought stocks
 125 (28)= $3,500
 Sell
 7(1.06384*500) =
 $3,723.44
 Stocks 125 *30.65=
 $3821.25
 Bond difference $376.53
 Stock difference = $331.25
$45.28
 Much of Ann’s investments are in Cilla
Shipping. Ten years ago, Ann bought seven
bonds issued by Cilla Shipping, each with a par
value of $500. The bonds had a market rate of
95.626.
 Ann also bought 125 shares of Cilla Shipping
stock, which at the time sold for $28.00 per
share. Today, Cilla Shipping bonds have a
market rate of 106.384, and Cilla Shipping stock
sells for $30.65 per share.
 Which of Ann’s investments has increased in
value more, and by how much?
 Mutual Fund is a fund that pools
money from multiple investors and
invests it into a variety of stocks,
bonds, and other securities.
 Net asset value or “NAV” is the value
of a share for a mutual fund.
 Shareholder- part owner of a
company
 “No load” refers to the absence of a
fee when purchasing a share
associated with a mutual fund.
 Offering price is the price of a single
share associated with a mutual fund
after fees
 Why is too much diversification
considered a bad thing in a mutual
funds?
 When there is too much
diversification in a mutual fund, great
success in a single stock doesn’t
make much of a difference in the
overall progress of the fund.
 Why would a mutual fund, a
collection of stocks, bonds, and other
securities, have less risk than
investing in stocks alone?
 Stocks are higher risk than most
other securities in a mutual fund, but
when averaged with the risk of the
other securities, mutual fund risk is
not as high as stock risk.
 An investor buys 400 shares of stock
in a fund when the net asset value is
$23.79 and the offer price is $23.89.
The investor sells these shares when
the net asset value is $50.34 and the
offer price is $50.46. Determine the
amount of profit the investor earns.
a.
$10,580
b.
$10,620
c.
$10,628
d.
$20,136
 Ordinary Annuity
 an annuity which payments occur
at the end of each interestcompound period.
 annuity due
 is an annuity which payments
occur at the beginning of each
interest-compound period.
 Future value
 is the value of an asset at a specific
date.
 Present value
 is the value of an asset prior to,
and during a period of, liquidation
 How are annuities different from
mutual funds?
 Annuities pay off over a certain term,
whether immediate or deferred,
 Mutual funds require the investor to
withdraw their money from their
investment.
 Why is it important to start
investing earlier in ones life?
 With money invested early, the
interest compounded monthly or
annually is most beneficial over long
periods of time, and with continued
investments turns into a
considerable amount of money.
 Ordinary Annuity
 Payment made at end of each period
 Annuity Due
 Beginning of each payment period
 You plan on supplementing your
income. You would like to withdraw a
monthly salary of $1,205.78 from an
account paying 5.5% interest,
compounded monthly. Determine
the amount needed in the account
such that you can withdraw the
needed amount at the end of each
month for 5 years. Round to the
nearest cent.
5.5% rate
1,207.78 monthly
a.
$83,055.12
b.
$63,415.33
c.
$72,346.00
d.
$63,126.00
 Tami would like to withdraw
$10,364.10 at the end of each year,
for 10 years, from an account paying
2.3% compounded annually.
Determine the amount needed in the
account for Tami to do this. Round to
the nearest cent.
a.
$115,052.98
b.
$103,641.00
c.
$91,651.92
d.
$93,759.91
 What is the biggest difference in who
makes the contributions to 401(k)
and IRA retirement plans?
 Contributions to a 401(k) are
typically made by the employer with
funds deducted from the employee's
paycheck.
 An individual makes contributions to
an IRA account.
 Why would a Roth 401(k) investment
plan allow you to invest the most
amount of money?
 A Roth 401(k) plan takes money after
tax has been removed, and has a
limit of contribution, but withdrawal
is tax free.
 The traditional plan takes money
before tax is taken out, but
withdrawal of money from the fund
is taxed.
 401(K)
 IRA
 An individual retirement account,
or IRA, is a retirement account
that allows individuals to make
fixed annual contributions towards
retirement.
 Roth IRA is an individual retirement
account that allows an individual to
withdraw the amount invested, tax
free, when retired.
 Social Security, with respect to
retirement, is a social welfare
program established in the United
States to aid in the financial
obligations of retired people
 An annuity is the income from an
investment that is paid in regular
intervals.
 Tax deferred annuity is an annuity in
which taxes are applied at the time
of withdrawal.
 When should you think about a
retirement account?
 NOW!!!
 Types of Retirement plans
 IRAS
 Traditional IRA
 Roth IRA
 Employer Sponsored Retirement
Plans
 Defined benefits plan _ Pension
Plan
 Defined Contribution plan – 401K
 Sarah is 27 years old and is retiring at
the age of 65. When she retires, she
estimates that she will need a
semiannual income for 20 years.
 If Sarah contributes 9% of her
semiannual income of $18,567.11 to
a 401(k) paying 6.1% compounded
semiannually, approximately what
semiannual income will she be able
to draw?
 (Hint: Find the future value of her
investment prior to retirement and
use the as her investment amount
upon retirement)
 Use my calculator attached to my
teacher page.
 (hint use compound interest)
 Alexis is 25 years old and works for a
company that matches her 401(k)
contribution up to 5%.
 The interest rate for her 401(k) is
7,24%. If she puts away 10% of her
$32,000 salary every year, how much
would she have saved in 10 years? In
20 years? In 40 years?
 i= interest rate
 7.24%
 10 years = 67,076
 20 years = 202,013
 40 years = 1,019,564
 When is buying a house and renting
it out a profitable venture?
 When rent money coming in is more
than monthly mortgage, taxes, and
maintenance, rental real estate is
profitable.
 In which way do REITs resemble
mutual funds?
 Money is invested in a fund that is
controlled by a board, and dividends
are paid out to the investors.




Real Estate
Rental Property
Tenant
Landlord
 A real estate investment trust, or a
REIT, is an investment trust that owns
and manages a pool of commercial
and mortgage properties and other
real estate assets.
 Real Estate investment Group
 Real Estate Trading