Investing and The Stock Market Game

Securities and Exchange Commission (SEC)

1934 - Created to supervise stock exchanges and to punish fraud in sercurities trading.

Mutual fund ticker

Five letters, ends with "X"

Compound

Interest earned on both the initial principal and the interest reinvested from prior periods.

Time Value of Money

Increases in an amount of money as a result of interest earned

Things that could affect the value of a stock/bond

Investor actions Business conditions Government actions Economic indicators International events and conditions

Liquidity

ability to convert an asset into cash quickly

Rainy Day Fund

an emergency reserve set aside to cover future budget shortfalls

Economic growth

an increase in the total output

Stock market

A general term used to describe all transactions involving the buying and selling of stock shares issued by a company.

Industry

A group of businesses that produce a similar product or provide a similar service.

Rule of 72

A mathematical method that can be used to show how many years it will take to double your money in an investment

No-load fund

A mutual fund in which the individual investor pays no sales charge.

Bear market

A steady drop in the stock market over a period of time

Bull market

A steady rise in the stock market over a period of time

Free Enterprise System

An economic system in which people are free to operate their businesses as they see fit, with little government interference.

Stock split

An increase in the number of shares without changing the total value of the shares

Blue Chip Companies

Common name for companies w/a long history of trustworthy accounting, favorable returns & growth

Public companies

Companies that sell their stock to the general public

Fraud

Deceiving a person for personal gain. Best defense against this is to be a smart investor!

Decision Making Model

Define the issue or problem Gather info Consider alternatives and consequences (the trade-offs/opportunity costs) Make a decision and take action Modify plans as needed

Private companies

Don't sell ownership in a company; Individually owned

Tips to avoid investment fraud

If it sounds too good to be true... It probably IS! Always do your homework before investing!

Industry

Made up of corporations with similar products and services

Tips for investing

Pay yourself first! (Make investing a habit) Start early (remember the Time Value of Money) Set SMART goals that will inspire success (instead of saying you want financial security at retirement, say $500,000 net worth by age 60)

Exchange

People giving up something in order to receive something they would rather have

Why should people invest?

Prepare for a career, often by going to college Save for major purchases (college education, a family, a first home) Build up a "rainy day" fund for emergencies (job layoff, etc) Develop a personal financial/investment plan Start a savings and investment program

Short selling

Selling stock borrowed from a broker that must be replaced at a later time. A way to make money in the stock loses value.

Supply and demand

Stock prices rise and fall because of their _____.

Intermediate goals

Take a few years to accomplish (ex. - first car, college) Investors with these should consider mutual funds that pay dividends that don't fluctuate too much in price.

Long term goals

Take several years to accomplish (ex. Retirement), Investors should choose higher risk investments such as stocks, bonds, long term CDs, Individual Retirement Accounts (IRA),

Start early, buy and hold, diversify

The best advise for BUILDING WEALTH over the long term.

Never put all your "eggs in one basket"

The greater the diversification, the lower the exposure to risk!

Insider trading

The illegal practice of using special knowledge about a firmthat is not available to the general public for making profits in the stock market.

New York Stock Exchange (NYSE)

The largest US stock market; Also known as the "Big Board"; located on Wall Street; Combined with Euronext in 2007; originated with an agreement signed under a Buttonwood tree.

Investing

The purchase of assets with the goal of increasing future income.

Market capitalization

The total value of a company's stock. Multiply the total number of shares outstanding by the share price. The lower the value the riskier it would be to invest in the company.

Risk tolerance

Varies from person to person depending on the stages of life.

Short term goals

Will happen within a few months (ex. Summer vacation or Senior trip). To reach these, investors should choose low-risk vehicles such as CD's are better than investments like stock.

Mary, Mary quite contrary, How does your financial garden grow?

With STOCKS, BONDS, and MUTUAL FUNDS... A DIVERSIFIED Portfolio!

Reasons to study financial markets

Young people today are the investors of tomorrow. A person doesn't have to be rich to start investing. The financial markets will play a major role in the lives of most Americans.

Stock

a certificate documenting the shareholder's ownership in the corporation

Dow Jones Industrial Average (DJIA)

a measure of stock market performance; the average selling price of 30 top stocks

Financial Plan

a set of goals for spending, saving, and investing the money you earn

Investment bankers

a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors

Penny Stock

a stock selling for less that $5/share

Economic indicators

economic information used to measure the economy; includes gross domestic product, consumer price index, inflation rate, and unemployment rate

Risk

expose to a chance of loss or damage

NASDAQ Stock Market

is an electronic market (world's largest intranet); There is no trading floor; trades in mostly technology companies

Mutual funds

money from many investors is used to invest in a variety of companies; allows investors to spread out their risk among many investments

Limited Resources

refer to the limited quanities of labor, capital, land and entrepreneurship available to an economy for the production of goods and services.

Preferred Stock

stock whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights

Dividend

that part of the earnings of a corporation that is distributed to its shareholders

Initial public offering

the first time a corporation's stock is offered for sale to the public

Common Stock

the most basic form of ownership, including voting rights on major issues, in a corporation

Opportunity Costs

the most desirable alternative given up as the result of a decision

Interest Rate

the price paid for the use of money expressed as a percentage

Diversification

the strategy of spreading out investments to reduce risk

By earning dividends and by selling stock at a profit

the two ways stockholders make money

Economy

the way people use resources to meet their needs