INVESTMENT CHOICES. Dr. Suzanne B. Badenhop Professor/Extension Specialist
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1 INVESTMENT CHOICES Dr. Suzanne B. Badenhop Professor/Extension Specialist
2 INVESTING 101 What is your investment objective? What is your age? What is your time horizon What is your risk comfort level? What losses can you tolerate? Where can you put your money?
3 What is your investment objective? Produce income Outpace inflation Growth Capital preservation Social behavior Long term investing
4 What is an investment? the act of placing one s money in something to grow the money. In other words, have the money increase in value.
5 How do investments increase the value of money? Increase in value Payment of dividends or interest
6 OWNERSHIP/LOANERSHIP Ownership You purchase part of a company Loanership You lend your money to another entity.
7 Stocks (ownership) Common Stock Stockholder has the right to vote for the board of directors. Dividends vary. Preferred Stock Has claim on assets before common stockholders. Dividends are fixed.
8 Buying Shares of Stock Buy through a stock broker Buy through an online broker Buy direct from the company Direct Stock Purchase Plans Dividend Reinvestment Plans Belong to an investment club
9 When you buy shares of stock Read a prospectus on the company stock before you decide to buy. Keep records of purchase dates, dividend dates and amounts, sell dates, and prices for tax purposes. Cost basis for taxes.
10 Direct Stock Purchase Plans Convenient way to purchase shares of stock directly from the corporation. Become a shareholder with a minimum dollar investment Dividends can be reinvested to purchase additional shares
11
12 DOW JONES INDUSTRIAL INDEX 3M Co. (Diversified Industrials ) Alcoa Inc. (Aluminum) Altria Group Inc. (Tobacco) American Express Co. (Consumer Financial) American International Group Inc. (Full Line Insurance ) Boeing Co. (Aerospace ) Caterpillar Inc. (Commercial Vehicles & Trucks ) Citigroup Inc. (Banks) Coca-Cola Co. (Soft Drinks ) E.I. DuPont de Nemours & Co. (Commodity Chemicals ) Exxon Mobil Corp. (Integrated Oil & Gas ) General Electric Co. (Diversified Industrials ) General Motors Corp. (Automobiles ) Hewlett-Packard Co. (Computer Hardware ) Home Depot Inc. (Home Improvement Retailers ) Honeywell Intern l Inc. (Diversified Industrials ) Intel Corp. (Semiconductors ) IBM (Computer Services ) Johnson & Johnson (Pharmaceuticals ) JPMorgan Chase & Co. (Banks) McDonald's Corp. (Restaurants & Bars ) Merck & Co. Inc. (Pharmaceuticals ) Microsoft Corp. (Software ) Pfizer Inc. (Pharmaceuticals ) Procter & Gamble Co. (Nondurable Household Products ) SBC Communications Inc. (Fixed Line Telecommunications ) United Technologies Corp. (Aerospace ) Verizon Communications Inc. (Fixed Line Telecommunications ) Wal-Mart Stores Inc.(Broadline Retailers ) Walt Disney Co. (Broadcasting & Entertainment )
13 BONDS (loanership) Corporate Government Discount Zero Coupon Convertible
14 BOND RATINGS Moodys Aaa Aa A Baa Ba B Caa Ca C Standard & Poors AAA AA A BBB BB B CCC CC C C1
15 MUNICIPAL AND CORPORATE BONDS Typically issued in multiples of $1,000 or $5,000 Attractive yield Dependable income Think about maturity date Municipal bonds are exempt from Fed. Tax and usually state tax
16 ZERO COUPON BONDS Purchased at much less than face value No interest paid during the life of the bond Usually a long-term investment Sources include: U.S. Treasury Corporations State and local governments Receive full face value at maturity
17 ZERO COUPON BONDS Come in denominations as low as $1,000 Sold at discounts of 50% - 75%. Example: $1,000 zero yielding 6.15%, maturing in 20 years costs just $ Liquidity can be sold in the secondary market.
18 ZERO COUPON BONDS Ways zeros help in financial planning: Retirement planning supplement to a retirement savings program Education funding mature during a child s or grandchild s college years. Gifting to minor children Help meet future financial needs
19 MUTUAL FUNDS Pooled money resources Professionally managed Varying investment objectives
20 Purchased and sold as shares of a fund. A share value is expressed as NAV (Net Asset Value) NAV changes based on the performance and mix of the fund.
21 A professionally selected and managed portfolio of stocks, bonds and other securities. Purchase through a broker Purchase direct on some mutual funds Very liquid investment
22 Know investment objective of the fund There are 8,000 mutual funds (2005 7,977 funds: 4,586-equity funds; 505- hybrid funds; 2,015-bond funds; 871- money market funds) As of February 21, 2007 there are $2.4+ trillion invested in mutual funds. Source: Investment Company Institute
23 Fees: Sales charge or load (pays for financial professional) Purchase charge = Front-end load Sales charge = back-end load Redemption fee covers costs associated with redemption. Exchange fee charged with trading from one fund to another Annual Account Maintenance Fee for costs of providing services Management Fee costs for fund manager s services 12b-1 fees (Distribution fee) Deducted from the funds assets before earnings are distributed. Used to pay for broker advice and services to the fund Annual fee charges
24 REMEMBER Know your investment goals Determine your risk comfort level Never invest assets that you are not willing to lose.
25 INVESTMENT PREFERENCES Low Risk (safety) Low rate of return Low capital growth Conservative Present income Minimal management High-risk High rate of return High capital growth Aggressive Capital growth More management
26 References: Investment Company Institute U.S. Securities and Exchange Commission Bond Market Association Prepared by Dr. Suzanne B. Badenhop Updated March 2007
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