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