MODULE 3
THE NEXT BIG THING
Lesson 3.2
Stocks, Bonds & Mutual Funds
Stocks, Bonds & Mutual Funds
What is investing?
Investing is purchasing a financial product or other
item of value with an expectation of favorable
returns.
What is the purpose of investing?
The purpose of investing is to save money in order
to improve financial well-being.
Stocks, Bonds & Mutual Funds
What is return on investment (ROI)?
ROI is the rate of revenues received for every
dollar on invested in an item or activity.
ROI rates vary with each
investment.
Stocks, Bonds & Mutual Funds
What are stocks?
Stock is an instrument that signifies ownership in a
corporation and represents claim on a share of a
corporation’s assets and profits.
Stocks are typically riskier and long-term
investments.
Stocks, Bonds & Mutual Funds
What are bonds?
Bonds are interest-bearing certificates used as a
way for government or business to raise money.
The bondholder lends money to the bond issuer
for a set amount of time and interest. When the
bonds are “sold” back to the issuer, the interest
earned is given to the bondholder.
Bonds are typically low-risk and good for shortterm investments.
Stocks, Bonds & Mutual Funds
What are mutual funds?
Mutual funds are open-ended investments that are
professionally managed and consist of a variety of
investment instruments including stocks, bonds,
options, commodities, and money market
securities.
Diversification provides greater safety and reduces
risk.
Mutual funds are long-term investments.
Stocks, Bonds & Mutual Funds
What is real estate?
Real estate is a piece of land and any buildings or
structures on it.
Real estate is a long-term investment.
Stocks, Bonds & Mutual Funds
What are collectibles?
Collectibles are items which have value due to its
rarity and desirability, such as antiques, coins,
cars, and art.
Collectibles are long-term investments.
Stocks, Bonds & Mutual Funds
What are precious metals?
Precious metals are natural metals that have
value, such as gold, silver, platinum, and
palladium.
Precious metals are long-term investments.
Stocks, Bonds & Mutual Funds
Do all investments offer a guaranteed positive
return on investment (ROI)?
NO! Although some investments are more likely
to have a positive return on investment.
Stocks, Bonds & Mutual Funds
How are risk and return related?
The greater the risk an investment may lose
money, the greater its potential to provide a
positive substantial return. The inverse is also
true.
Stocks, Bonds & Mutual Funds
What factors determine the degree of risk
investors take?
• Age
• Risk tolerance
• Investment goals
Stocks, Bonds & Mutual Funds
Investor Profiles
Very Conservative – seeks to maintain the original value of the
investments and is prepared to accept lower returns for lower risk.
Conservative – seeks relatively stable returns and accepts some
risk through a diversified portfolio.
Moderate – seeks higher medium-term returns and accepts the
possibility of negative returns over short periods.
Aggressive – seeks high long-term returns and accepts the higher
possibility of sustained negative returns over short periods.
Very Aggressive – seeks to maximize long-term returns and accepts
the possibility of greater volatility and short-term capital losses.
Stocks, Bonds & Mutual Funds
Types of investments
• Individual stocks
• Individual bonds
• Mutual funds
• Real estate
• Collectibles
• Precious metals
Investment Attributes
Identify the attributes (qualities) for different investments. Answer the questions for each type of investment.
Piggy
Bank
Do you need a
minimum amount of
money to start/buy
it?
Can you get initial
money back?
Does it pay interest?
Can someone steal
it?
Is it professionally
managed?
Is it easy to access
the money?
Best for Long-Term
or Short-Term
Goals?
Savings
Account
Individual
Bonds
Mutual
Funds
Individual
Stocks
Real
Estate
Collectibles
Precious
Metals
Investment Attributes
Identify the attributes (qualities) for different investments. Answer the questions for each type of investment.
Do you need a
minimum amount of
money to start/buy
it?
Can you get initial
money back?
Does it pay interest?
Can someone steal
it?
Is it professionally
managed?
Is it easy to access
the money?
Best for Long-Term
or Short-Term
Goals?
Piggy
Bank
Savings
Account
Individual
Bonds
Mutual
Funds
Individual
Stocks
Real
Estate
Collectibles
Precious
Metals
No
Maybe
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Maybe
Maybe
Maybe
Maybe
Maybe
No
Yes
Yes
Maybe
Maybe
No
No
No
Yes
No
No
No
No
No
Yes
Maybe
No
Yes
Yes
Yes
No
No
No
No
Yes
Yes
No
Yes
Yes
Maybe
Maybe
Maybe
Short
Short
Short
Long
Long
Long
Long
Long
Stocks, Bonds & Mutual Funds
Uma will be retiring in five years. She needs a
low-risk place to put her money that will earn
interest. Where might she invest? Why?
Bonds would be a good place for her retirement
monies. They are typically low-risk and still pay
interest.
Stocks, Bonds & Mutual Funds
Skip will be retiring in 38 years. He has an
emergency fund that could support him for
nine months if something were to happen.
Skip wants his money to work for him and he
is not scared of market fluctuations. Where
might he invest? Why?
Stocks and/or mutual funds would be good options.
Typically, stocks and mutual funds perform well over
time and outperform other investments.
Stocks, Bonds & Mutual Funds
Imogene needs to start an emergency fund.
Where might she invest? Why?
A savings account in a bank would be a good option
for her. It is a low-risk investment, easily accessible
and it earns interest.
Stocks, Bonds & Mutual Funds
Anne is saving for a new car. She wants to
buy the car in three years. Where might she
invest? Why?
A savings account in a bank would be a good option
for her. She would earn interest, and it is a low-risk
investment.
Stocks, Bonds & Mutual Funds
There are different types of investments and
all have different ROI.
The greater the risk on an investment, the
greater the possibility of high returns and also
negative returns.
The type of investment should align with your
investment profile.