Investment Strategies

1
Investment Strategies

• Career Financial Management
• Mrs. Wilson

2
Long-Term Techniques

• Statistics show that over a long time stock
  investments have consistently beaten rates for
  savings accounts, CDs, and other conservative
  options

3
Buy and Hold

• If you buy and hold, you can ride out the down
  times
• When you are ready to sell years later, most
  likely you stock will have gained value
• In addition, many stocks pay dividends, so you
  are earning income while you hold stock
• A stock split can also add value over time
• A stock split is an increase in the number of
  outstanding shares of a companys stock

4
Stock Split Example

• If there were 1,000 shares outstanding with a
  market value of 60 then
• A 21 (two for one) split would result in 2,000
  shares outstanding selling for 30
• You will notice that the total stock is still
  worth 60,000
• A stock split lowers the selling price, making
  the shares more affordable and encouraging
  investors to buy more
• Price often rises!

5
Dollar-Cost Averaging

• Involves the systematic purchase of an equal
  dollar amount of the same stock at regular
  intervals
• Usually results in a lower average cost per share
• To calculate the average cost per share, divide
  the total amount invested by the total number of
  shares purchased, as shown in Figure 12-4 on page
  345 in your book

6
Dollar Cost Averaging
Monthly Investment Amt Share Price Number of Shares
100 10 10
100 7 14.29
100 5 20
100 10 10
400Total Invested 32 54Total Number of Shares
Average share price 8 (32/4) Your average
cost per share 7.41Total invested (400) /
total number of shares (54) Ending value
540Last share price (10) x number of shares
(54)
7
Reinvesting Dividends

• You can save money by reinvesting dividends
• This means using dividends previously earned on
  the stock to buy more shares
• This avoids broker fees and other costs

8
Reading the Stock Listings

• To make wise decisions, you will need to track
  the progress of your chosen investments to see
  how they are performing
• Keeping track of your stock portfolio (or
  holdings) can be as simple as checking the
  closing prices periodically
• Refer to pages 346 and 347 in your textbook

9
Stock Indexes

• Stock index
• Benchmark that investors use to judge the
  performance of their investments
• Examples
• Dow Jones Industrial Average
• Simply called the Dow
• It is an average of the price movements of 30
  major stocks listed on the NYSE
• Provides a general overview of what stock prices
  are doing in the stock market as a whole
• Standard Poor's \ NASDAQ Composite
• Other commonly used indexes

10
Two-Day Assignment

• Pages 354 355
• Questions 1, 5, 6 (tricky!), 8, and 9.
• Each answer is worth 20 points
• Counts as a test grade
• Due tomorrow at the end of class