Investment Jeopardy PowerPoint

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Terminology & Concepts

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Stocks

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Bonds

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Mutual Funds

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Emergencies, Education

& Retirement

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This represents the total value (in percentage terms) of what you earn on your investments.

What is rate of return?

Terminology & Concepts - 100

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Dividends, Interest and rent are examples of this.

What is investment income?


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Doing this to your investment portfolio will reduce risk, but it

will also reduce return.

What is diversifying?


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This is what you are doing when you invest an equal amount of

money at regular intervals.

What is dollar-cost averaging?


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This is your inability to convert your investments to cash without a capital loss.

What is liquidity risk?


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This is what shares of stock represent to the buyer.

What is ownership?

Stocks - 100

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This is what you receive when you sell shares of stock for more

than or less than you paid for them.

What are capital gains and capital losses?

Stocks - 200

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Stocks issued by well-known companies with sound financial

histories are called this.

What are blue-chip stocks?

Stocks - 300

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These stocks are issued by companies whose earnings tend to move

inversely to the broader economy and may actually increase during economic

downturns.

What are defensive stocks?

Stocks - 400

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For a fee, these two plans allow shareholders to

purchase stock directly from the company.

What are Dividend Reinvestment Plans (DRIPs) and Direct Stock Purchase Plans

(DSPP) or Direct Investment Plans (DIPs)?

Stocks - 500

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You are doing this when you invest in bonds.

What is loaning money?

Bonds - 100

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The amount returned to the bondholder at maturity is called

this.

What is face value or par value?

Bonds - 200

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This is what bonds issued by the state and local government are

called.

What are municipal bonds or muni’s?

Bonds - 300

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This does not have to be paid on interest earned on treasury

bills, notes and bonds.

What is state income tax?

Bonds - 400

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Bond rating companies rate bonds based on this risk.

What is default risk?

Bonds - 500

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A mutual fund is this type of company.

What is an investment company?

Mutual Funds - 100

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These are sales commissions charged to the investor of a

mutual fund.

What are loads?

Mutual Funds - 200

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These funds invest in short-term securities such as treasury bills

and certificates of deposit.

What are money market mutual funds?

Mutual Funds - 300

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The primary objective of these funds is preservation of capital

invested.

What are balanced mutual funds?

Mutual Funds - 400

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The name of the fees mutual fund investors are charged for fund

management and fund advertising and marketing.

What are management fees and 12b-1 fees?

Mutual Funds - 500

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Because liquidity is important for this type account, money market

accounts and short-term certificates of deposit are good

choices.

What is an emergency account?

Investing for Emergencies, Education & Retirement - 100

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Contributions to this retirement account are not tax deductible,

but earnings are tax-free.

What is a Roth IRA?


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If you have this type of employer-sponsored retirement plan, your benefit payment is based on the account balance at retirement.

401(k), 403(b) and 457 plans are examples of this type plan.

What is a defined-contribution plan?


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With this type of employer-sponsored retirement plan, the benefit payment that

you receive at retirement is specified based on the plan’s formula. The

Teacher’s Retirement System (TRS) and Employee Retirement System of Georgia (ERSGA) are examples of this type plan.

What is a defined-benefit plan?


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These education plans have tax-deferred growth and distributions

from these plans are excludible from gross income if used to pay certain

educational expenses.

What are qualified tuition plans or 529 plans?


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Investment Terminology and Concepts

• What is Investing?– Investing is putting your money

into an asset that generates a rate of return.

– Some examples of investments are stocks, bonds, mutual funds, and real estate.

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• Investment Income– Income that you receive from the

investment while you have it•from bonds you receive interest•from stocks you receive dividends•from real estate you receive rent

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• Capital Gain or Loss– Profit or loss received when you sell

an investment that has increased or decreased in value

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• Rate of Return– Total return (investment income

and capital gains) generated from an investment stated in percentage terms

• Investment Risk– Uncertainty that an investment will

not perform as expected

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• Types of Risk– Interest rate risk– Inflation (purchasing power) risk– Financial (default) risk– Liquidity risk– Business risk– Market risk

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• Risk Capacity– The amount of risk you can afford

to accept

• Risk Tolerance– The amount of risk you feel

comfortable accepting

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• What is your “risk” personality?– http://www.rce.rutgers.edu:8080/

money/riskquiz/default.asp

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• Diversification– Investing in several different types of

securities in an effort to reduce overall risk in your investment portfolio

• Dollar-Cost Averaging– Investing an equal amount of money

regularly regardless of the investment’s price

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• Asset Allocation– Allocating proportions of your

investment portfolio to different categories of assets

• Leverage– Using borrowed money to make an

investment

• Time Horizon– The period of time before you will need

the money you invested

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• Types of Investments– Ownership investments (Equity)

•Stock•Real estate

– Lending investments (Debt)•Bonds

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What are Stocks?

• Stocks are shares of ownership in a company.

• Stock represents a claim on the company's assets and earnings.

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What Does Stock Ownership Mean?

• Voting Rights• Owning shares in Home Depot

does not mean you can go help yourself to free home improvement or other building materials!

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Buying Stocks

• Brokers• DRIPs & DSPPs or DIPs

– Dividend Reinvestment Plans (DRIPs) and

– Direct Stock Purchase Plans (DSPPs) or Direct Investment Plans (DIPs) are plans with which individual companies for a minimal cost, allow shareholders to purchase stock directly from the company.

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Why Consider Stocks?

• Stocks can provide investors with dividends and capital gains.

• Over time, common stocks outperform all other investments.

• Stocks are somewhat liquid.• Growth of your investment is

determined by more than just interest rates.

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General Classifications of Stock

• Blue-Chip Stocks• Growth Stocks• Income Stocks• Speculative Stocks• Cyclical Stocks• Defensive Stocks• Large-Cap, Mid-Cap, Small-Cap and

Micro-Cap Stocks

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What are Bonds?

• Similar to an I.O.U. When you purchase a bond, you are making a loan to a corporation, local, state or federal government, federal government agency or other entity known as the issuer.

• The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it “matures,” or comes due.

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Why Consider Bonds?

• Bonds produce steady current income.

• Bonds can be a safe investment if held to maturity.

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Basic Bond Terminology and Features

• Face Value: the amount you loan (principal) and is returned to you at maturity

• Coupon Rate: the annual interest rate that is paid over the life of the bond

• Maturity date: the date the investor receives the principal back

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Types of Bonds

• Corporate Bonds• Municipal Bonds• Treasury Bills, Notes, Bonds and

Treasury Inflation-Protected Securities (TIPS)

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Bond Ratings

• Generally ratings run from AAA or aaa for the safest to D for the extremely risky.

• Ratings categorize bonds by default risk.• Rating Companies

– Standard & Poor’s– Moody’s

• http://www.moodys.com/– Fitch

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What are Mutual Funds?

• An investment company that pools money from investors to buy stocks, bonds, and other investments. Investors own shares of the fund proportionate to the amount of their investment.

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Why Invest in Mutual Funds?

•Benefits the Small Investor– Mutual funds allow people with a

limited amount of money the opportunity to invest and purchase enough investments to have a fully diversified investment portfolio.

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Advantages of Mutual Fund Investing

• Diversification• Professional Management• Minimal Transaction Costs• Liquidity• Flexibility• Service

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Disadvantages of Mutual Fund Investing

• Lower Than Market Performance• Costs

– Loads– Management fees– 12b-1 fees

• Capital Gains Distributions

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Types and Objectives of Mutual Funds

• Money Market Mutual Funds• Stock Mutual Funds

– Aggressive growth funds– Small company growth funds– Growth funds– Growth and income funds– Sector funds– Index funds– International funds

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Types and Objectives of Mutual Funds

• Balanced Mutual Funds• Asset Allocation Funds• Life-Cycle Funds• Bond Funds

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Investing for Emergencies

• Savings Accounts• Money Market Accounts• Money Market Mutual Funds• Short-term Certificates of Deposit

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Investing for Education

• Qualified Tuition Plans (QTPs or 529 Plans)– Prepaid Tuition Plans– Savings Plans

• Coverdell Education Savings Account (ESA)

• Series EE Savings Bonds• Traditional IRA• Roth IRA

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Investing for Retirement

• Employer-Sponsored Plans– Defined-Contribution Plans– Defined-Benefit Plans

• Personal Savings Plans– Traditional IRAs– Roth IRAs

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Investing for Retirement

• Self-Employed Plans– Keogh plan– Simplified Employee Pension Plan

(SEP)

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Investment Jeopardy PowerPoint

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