Download - Understanding the Words of Wall Street:
Understanding the Words of Wall Street:Putting your money to work
Investment Pyramid
CollectiblesProperty
Government Bonds, Certificates of Deposit (CD’s)
Savings/checking accounts
Stocks
IRA’s/401k’s Corporate Bonds
Mutual Funds
Increasing Risk = Increased chance of larger rate of return.
More Volatile/Speculative Investments and decreased liquidity
More Conservative Investments and increased liquidity
Investments on bottom of pyramid = low risk & low rate of return!
So What is a Stock?
Stocks:• Ownership interest in a
company• When you own stock/shares in
a company essentially you own part of the company.
Why buy a stock?
You will have…• Possibility to sell shares at a
higher price later. (buy low, sell high)
• May receive dividends (profit or AKA earnings)
• Possible claim on assets• Voting rights
Preferred vs Common Stock
• Preferred Stock:• Pays a fixed dividend
• Common Stock:• Voting rights• More Volatile
Where Are Stocks Bought & Sold?
Market
Buyers Sellers
Major Stock Markets
• New York Stock Exchange (NYSE)• Oldest, largest exchange
• NASDAQ• Pure Electronic Exchange
Video
What affects the Price of a Stock?
• Fundamentally: • Supply and Demand
• Demand is effected by…• Company Health / Outlook• Industry Trends• Economy• National & World Events
Confidence and Fear
Advantages vs. Disadvantages
• Advantages:• Medium to High return potential
• Historically 10%-12% return• Highly Liquid
• Disadvantage:• Medium to High risk• Highly volatile
Buying Stocks
Broker• A licensed professional that buys
and sell stocks for investors. • Example: Schwab, Edward Jones
Pro ConExpertise High Fees &
Commissions
Buying Stocks
Online• A website that allows users to buy
and sell stocks. • Example: Ameritrade
Pro ConLow cost Limited
Assistance
Income Stocks
• Older, stable companies• High dividends, low growth• Utility companies: ComEd• Low Risk/Low Return• Good for older investors
Blue-Chip Stocks
• Well Known, reliable companies• Small but regular dividends• Steady growth• GE, Microsoft, Walmart • Medium risk / Medium Return• Good for long term investors who
don’t want to much risk
Growth Stocks
• Young, entrepreneurial companies• High Growth Potential• Example: Tech start-ups • High Risk / High Return• Good for risk takers who could
afford a loss.
Mutual Funds
• A collection of investments managed by professionals.• Traded just like a stock.
• Pros:• Easy way to diversify• Professionally managed
• Cons:• Fees
Types of Funds
Bonds (aka income)Balanced (bonds and stocks)Equity (stocks)InternationalIndex (low fees) e.g S&P 500 /DJIA
Retirement Accounts
IRA’s• An investing plan with special tax
benefits401K Plan• A tax differed retirement plan set-
up by your employer.• Employer may match contributions