Financial Advisor Group



Financial Advisor Group

You and your partner are Financial Advisors. You are tasked with investing others money in the stock and bond market. You will have until January 8 to make your clients a 5% return on their investments.

First, you have to sell yourselves—you and your partner will be given an opportunity to give the reasons your classmates should invest with your group. You need to come up with an investment strategy. You can pass out advertisements, and even create a mock website to advertise yourself. You cannot promise anyone of you can make them money—you are just selling yourself as a trustworthy, knowledgeable person, with a good investment strategy, they can rely on when it comes to their money.

Step 1: Figure out your strategy: Aggressive, Conservative, a mix? Give a percentage of Stocks, Bonds and Cash you will invest in: Example: Stocks85%, Bonds 10%, Cash 5%

Step 2: Divide the assets within the Category: Example: Stocks: 50% Growth, 40% Value and 10% Income : Bonds: 50% corporate, 50% Treasure Bonds: CASH: Bank Savings 100%

Step 3: Find Stocks/Bonds that match your strategy

Step 4: Present your strategy to potential clients (your classmates). Do a 3-5 minuet presentation, PowerPoint, on your strategy and why it will work, and how you came up with it

Step 5: Take the money you have to invest from your classmates, and invest their money using your strategy

Step 1=one class

Step 2=one class

Step 3=two classes

Step 4=one class

Step 5=two class

Total=Seven Classes

2 Grades:

Grade 1=: Step 1,2,3 and 5—25 Pts. Each

Grade 2=Step 4 (present to classmates)

Investment Strategies:

|[pic] |Stocks - Stocks have historically had the greatest risk and highest returns among the three major asset categories.|

| |As an asset category, stocks are a portfolio's "heavy hitter," offering the greatest potential for growth. Stocks |

| |hit home runs, but also strike out. The volatility of stocks makes them a very risky investment in the short term. |

| |Large company stocks as a group, for example, have lost money on average about one out of every three years. And |

| |sometimes the losses have been quite dramatic. But investors that have been willing to ride out the volatile |

| |returns of stocks over long periods of time generally have been rewarded with strong positive returns. |

| |  |

|[pic] |Bonds - Bonds are generally less volatile than stocks but offer more modest returns. As a result, an investor |

| |approaching a financial goal might increase his or her bond holdings relative to his or her stock holdings because |

| |the reduced risk of holding more bonds would be attractive to the investor despite their lower potential for |

| |growth. You should keep in mind that certain categories of bonds offer high returns similar to stocks. But these |

| |bonds, known as high-yield or junk bonds, also carry higher risk. |

| |  |

|[pic] |Cash - Cash and cash equivalents - such as savings deposits, certificates of deposit, treasury bills, money market |

| |deposit accounts, and money market funds - are the safest investments, but offer the lowest return of the three |

| |major asset categories. The chances of losing money on an investment in this asset category are generally extremely|

| |low. The federal government guarantees many investments in cash equivalents. Investment losses in non-guaranteed |

| |cash equivalents do occur, but infrequently. The principal concern for investors investing in cash equivalents is |

| |inflation risk. This is the risk that inflation will outpace and erode investment returns over time. |

| | |

Diversification 101

A diversified portfolio should be diversified at two levels: between asset categories and within asset categories. So in addition to allocating your investments among stocks, bonds, cash equivalents, and possibly other asset categories, you'll also need to spread out your investments within each asset category. The key is to identify investments in segments of each asset category that may perform differently under different market conditions.

One of way of diversifying your investments within an asset category is to identify and invest in a wide range of companies and industry sectors. But the stock portion of your investment portfolio won't be diversified, for example, if you only invest in only four or five individual stocks. You'll need at least a dozen carefully selected individual stocks to be truly diversified.

Because achieving diversification can be so challenging, some investors may find it easier to diversify within each asset category through the ownership of mutual funds rather than through individual investments from each asset category. A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, and other financial instruments. Mutual funds make it easy for investors to own a small portion of many investments. A total stock market index fund, for example, owns stock in thousands of companies. That's a lot of diversification for one investment

TYPES OF STOCK TO CHOOSE FROM

Growth Stocks

Growth stocks grow and keep growing. When they stop growing they aren't growth stocks anymore and their share price is likely to drop dramatically unless the slowing is seen to be the natural process of a maturing company.Growth investors focus on share price appreciation and are not concerned with dividends, since few growth stocks pay any.

Investors choose growth stocks for their above-average growth rates and hope the stock price follows the growth. This is always a judgment call, because growth in revenue doesn't always translate into growth in earnings.

In fact, some growth companies reinvest all their earnings back into the company to fund more growth. This is a good strategy if growth continues. When growth begins to slow because competition is catching up or the company has grown so big that huge growth isn't possible, growth investors may move on.

Income Stocks

Income stocks represent mature, stable companies that pay consistent dividends. These companies often don't have much growth room, but are steady income producers.

Dividends are cash payments (usually, but not always) to shareholders by companies. Dividends are a distribution of profits to the owners. Companies that pay regular dividends are valued for that extra return they provide shareholders.

Utilities are considered income stocks because they aren't usually expanding and often pay attractive dividends.

Value Stocks

Value stocks represent companies that have been incorrectly valued by the market. For some reason, the stock price is lower than it should be to accurately reflect the value of the company.

This is a true buy-and-hold strategy that may take some time to work out. However, if you have done your homework, the rewards can be excellent.

Small, Medium, and Large Cap Stocks

Market capitalization or market cap is simply a way of referring to the size of a company in a manner that allows you to compare companies in different industries.

Size matters in the market place. Small companies are more risky than larger companies are. They have shorter life spans unless they grow or merge with a larger company.

However, with risk comes the potential for reward. Small cap stocks can out-perform all other size stocks under certain market conditions, so many investors carry a small portion of them in their portfolio.

Small companies that grow to be big companies (like Microsoft and Apple) can make early investors very wealthy, but most don't. Large companies can protect their market share and fend off competitors more easily.

TYPES OF BONDS

Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good.

U.S. Treasury securities—such as bills, notes and bonds—are debt obligations of the U.S. government. When you buy a U.S. Treasury security, you are lending money to the federal government for a specified period of time.

Because these debt obligations are backed by the “full faith and credit” of the government, and thus by its ability to raise tax revenues and print currency, U.S. Treasury securities – or "Treasuries" – are generally considered the safest of all investments.

Corporate bonds-- (also called corporates) are debt obligations, or IOUs, issued by private and public corporations. They are typically issued in multiples of $1,000 and/or $5,000. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business.

Cash and cash equivalents are either cash or assets readily convertible into cash. Coins, Currency, Cash in checking accounts, Cash in savings accounts, Bank drafts, Money orders, Petty cash

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