Investing 101: You and Your Money

The concept of investing and its importance to personal finance.
Understanding different types of investment vehicles, risk factors, and potential returns.

Stocks represent ownership in a corporation.
Stocks can be traded publicly on stock exchanges.
Stock ownership often includes rights such as voting on corporate issues depending on stock type.

Common Stock
- Provides voting rights to stockholders.
- Most commonly issued stock type to shareholders.
- Trading occurs on major exchanges like NYSE (New York Stock Exchange) and NASDAQ.
- Initial investment capital is garnered through an IPO (Initial Public Offering).
- Investors either gain or lose money post-IPO based on stock performance.
Preferred Stock
- Does NOT grant voting rights to shareholders.
- Has a higher claim on assets than common stock, meaning preferred shareholders may receive payments in bankruptcy before common stockholders.
- Considered more stable but less common.

Growth Stocks
- Do NOT pay dividends.
- Investors rely on price appreciation for returns, with higher volatility and associated risks.
Income Stocks
- Provide dividends, representing a portion of the company’s profits.
- Dividend checks or deposits occur quarterly, which can stabilize returns.

Stocks can be categorized by sectors based on the industry type.
- Examples include: Manufacturing, Transportation, Technology, Retail.

Stocks are classified according to the size of the company:
- Small Cap: Generally higher risk, smaller companies.
- Mid-Cap: Moderate risk, mid-sized companies.
- Large Cap: Typically more stable; many also qualify as Blue Chip stocks.

Growth Stocks: Higher risk and higher potential returns, no dividend payments.
Income Stocks: Lower risk with dividend payments that contribute to returns.

More Risk / Potentially Higher Returns:
- Limited Partnerships
- Options
- Commodities
- Speculative Stocks and Bonds
- Alternative Investments
- Real Estate Investment Trusts
- International Stocks
Less Risk / Potentially Lower Returns:
- Blue Chip Stocks
- Growth Portfolios or Funds
- Preferred Stock
- Municipal Bonds
- Fixed Annuities
- Money Market Funds
- Insured Savings Accounts
- Treasury Securities
- Certificates of Deposit

Professionally managed portfolios of stocks or bonds funded by pooled investor money.
Allows fractional share purchases.
Suitable for small investors and retirement accounts.
Various fee structures exist; generally perform well over the long term.

Mutual funds allow for diverse holdings which spread risk across various investments (stocks and bonds).
Diversification minimizes the risk of poor performance in a single investment affecting the entire portfolio.

Mutual Fund Companies offer a portfolio of different fund types:
- Cover a spectrum of sectors (e.g., Blue Chip, Small Cap, domestic, and foreign stocks).

Most 401K plans allow participants to choose how much to invest monthly.
Participants can mix funds as desired, with potential employer matching contributions up to a specific annual cap.

Bonds are essentially loans issued by corporations or governments.
Types of Bonds:
- Corporate Bonds: Issued by public corporations; funds go to business growth or debt repayment.
- Government Bonds: Backed by the Federal Government; considered the safest. Includes U.S. Treasury bonds, bills, and notes.
- Municipal Bonds: Issued by cities; often fund public projects and are less risky than corporate bonds.

Bonds are rated from AAA to D based on risk level; A is safest, D is most risky.
Rating influences return rates and is provided by agencies like Moody's and Standard & Poor's.

Bonds can be held to maturity for interest or traded on exchanges like stocks.
Bond mutual funds offer diversified bond portfolios with generally lower returns compared to individual bonds.

Bond rates are typically set by the Federal Bank's prime lending rates.
As lending rates change, the rates and values of existing bonds fluctuate accordingly.

Comprises all financial investments and their current values, which may fluctuate over time.
Capital gains from sold investments are federally taxed.

Refers to the speed and ease with which investments can be converted into cash.
Bonds and stocks offer good liquidity with settlements within three business days.
Savings accounts are the most liquid (demand deposits) whereas CDs are the least liquid as they have fixed expiration dates.

ROI is a measure of the profitability of an investment, typically expressed as a percentage.
For stocks, it is calculated from the profit or loss during buy/sell transactions.
For bonds, calculated as interest earned minus the principal, also reflecting changes from trading prices.

Many individuals will participate in retirement accounts or pension plans investing in these types of assets.
Conscious decisions about investments affect financial futures and security directly.