Using Dollar Cost Averaging to Take Advantage Of

Total Page:16

File Type:pdf, Size:1020Kb

Using Dollar Cost Averaging to Take Advantage Of Issue 1 Vol 11 | Spring 2020 IRI Insured Retirement Institute myIRIonline.org In This Issue: USING DOLLAR COST AVERAGING Using Dollar Cost TO TAKE ADVANTAGE OF MARKET Averaging to Take Advantage of Market VOLATILITY Volatility 1 By Tim Seifert Finding Confidence in SVP and Head of Annuity Sales, Chaotic Times Lincoln Financial Distributors 4 IRI Fast Facts The ongoing COVID-19 pandemic and resulting economic repercussions have changed every 6 element of our daily lives and the way we plan for the future. Among top concerns during this time, including physical wellness and financial security, investors are navigating extreme Stay Secure When market volatility and the potential long-term impact it will have on their retirement savings. Working from Home Research from the Alliance for Lifetime Income shows that more than half of Americans are concerned they may need to delay retirement due to the current volatile market,1 and 7 Lincoln has found that half are interested in exploring protected lifetime income solutions.2 Maintaining Perspective in Times of Financial Volatility 9 SECURE Act Gives Annuities a Boost 11 FOLLOW US! © Insured Retirement Institute 2019 Continued on page 2 Financial Professional Use Only 1 Spring 2020 | myIRIonline.org Continued from page 1 More than ever, investors are turning to their financial professional’s Unlike a single investment, this strategy of easing into the market counsel to help protect their nest eggs and position them for the can help protect against risk. Given the current circumstances, future – especially if their retirement years are in view. Some clients DCA presents enhanced opportunity for investors to boost their may feel spooked, agonizing whether to participate in market retirement savings, particularly when leveraging a variable annuity risk in exchange for potential growth or go to cash but miss the that combines the power of DCA with an interest rate as high as 8%.3 upside potential of a rebound that they may need to reach their With a systematic DCA strategy, clients will be able to make the long-term goals. most of their investment dollars by smoothing out fluctuating share Advisors can help clients feel confident about their investment prices over time. Because DCA involves continuous investment decisions amidst the crisis by guiding them through the emotional regardless of changing price levels, clients can consider their highs and lows of the turbulent market, and providing tax- ability to continue purchasing through periods at all price levels. efficient options that involve a simple, disciplined approach This steady investment pace requires discipline by clients during to investing. periods of market volatility, which may require an advisor’s ongoing LEVERAGING DOLLAR COST AVERAGING DURING guidance. MARKET VOLATILITY PROTECTING RETIREMENT INCOME AND GROWING One way to help clients see the potential of market movement INVESTMENT DOLLARS and keep them steady during the crisis is to explain the value of DCA can be an especially effective strategy within annuity allocations dollar cost averaging (DCA). This strategy is a simple, disciplined for investors looking to increase their protected lifetime income. and proven approach where investors follow a regular investment Using a DCA approach within an annuity contract that features schedule over time, regardless of market conditions. Clients will an optional living benefit rider allows clients to take advantage of buy more assets when the market is low and prices decline, like guaranteed interest payments while their money is invested over in current conditions, and buy fewer assets when the market is time, in addition to managing fluctuating market prices. yielding higher prices — generally resulting in a lower average cost per share. Here’s an example that illustrates how this concept allows for growth of annuity investment dollars when coupled with a DCA program. Monthly guaranteed cumulative interest earned $1,941 Total interest $1,833 earned This example illustrates the $1,610 total interest earned assuming st earned tere a $100,000 investment into e in ativ $1,288 an annuity contract with DCA, Cumul assuming an 8% guaranteed $848 interest rate over a six-month $337 period. The 8% guaranteed interest rate that clients would receive over the six-month period is in addition to the Monthly interest annuity’s crediting rate. Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 $337 $511 $440 $322 $223 $108 Spring 2020 | myIRIonline.org 2 Using a DCA strategy within a client’s annuity allocations gives contain both investment and insurance components and have fees the opportunity to invest in underlying investment options on a and charges, including mortality and expense, administrative, and regular basis, locking in guaranteed interest payments via a living advisory fees. Optional features are available for an additional benefit rider as they invest over a set period of time. Doing so may charge. The annuity’s value fluctuates with the market value of result in an annual yield that may outpace market interest rates the underlying investment options, and all assets accumulate tax- and help accelerate savings for future income. deferred. Withdrawals of earnings are taxable as ordinary income and, if taken prior to age 59½, may be subject to an additional This simple, methodical approach can provide clients with a boost 10% federal tax. Withdrawals will reduce the death benefit and to their retirement savings to help them reach their retirement cash surrender value. income goals, despite a downward trending market. Additionally, while DCA is an effective way to initially get clients into the market, Investors are advised to consider the investment objectives, risks, it’s important to keep an eye on your client’s overall portfolio and and charges and expenses of the variable annuity and its underlying rebalance as necessary. An annuity allows this activity to occur investment options carefully before investing. The applicable in a tax-deferred environment. prospectuses for the variable annuity and its underlying investment options contain this and other important information. Please call SOLUTIONS FOR A BRIGHT TOMORROW 888 868 2583 for free prospectuses. Read them carefully before In times of crisis, clients can feel empowered by knowledge and investing or sending money. Products and features are subject solutions. DCA is an option that can help clients navigate their to state availability. concerns regarding current unstable market conditions by easing Lincoln Investor Advantage® variable annuities (contract forms them into the markets steadily over time. When describing this 30070-A, 30070-B and state variations) are issued by The Lincoln strategy to clients, advisors can help them feel more comfortable National Life Insurance Company, Fort Wayne, IN, and distributed investing in the market by employing an annuity with a DCA by Lincoln Financial Distributors, Inc., a broker-dealer. The Lincoln program. While DCA cannot guarantee a profit or protect from National Life Insurance Company does not solicit business in the a loss in a declining market, it offers a strategic approach to state of New York, nor is it authorized to do so. counterbalancing the turmoil. Contracts sold in New York (contract forms 30070-A-NY and 30070- By Tim Seifert, Head of Annuity Sales for Lincoln Financial Distributors. B-NY) are issued by Lincoln Life & Annuity Company of New York, Lincoln is currently offering investors a DCA option through its Syracuse, NY, and distributed by Lincoln Financial Distributors, Investor Advantage annuity, offering an 8%, six-month fixed rate Inc., a broker-dealer. special through June 30, 2020. All contract and rider guarantees, including those for optional LCN-3076361-050720 benefits, fixed subaccount crediting rates, or annuity payout rates, Lincoln Financial Group® affiliates, their distributors, and their are subject to the claims-paying ability of the issuing insurance respective employees, representatives, and/or insurance agents company. They are not backed by the broker dealer or insurance do not provide tax, accounting, or legal advice. Please consult an agency from which this annuity is purchased, or any affiliates of independent advisor as to any tax, accounting, or legal statements those entities other than the issuing company affiliates, and none made herein. makes any representations or guarantees regarding the claims- Variable annuities are long-term investment products designed paying ability of the issuer. for retirement purposes and are subject to market fluctuation, There is no additional tax-deferral benefit for an annuity contract investment risk, and possible loss of principal. Variable annuities purchased in an IRA or other tax-qualified plan. 1 Source: Alliance for Lifetime Income: 2020 Retirement Reset Survey 2 Source: Phoenix Marketing International / Lincoln Financial Group, Affluent Market Study, 2020 3 Lincoln Investor Advantage® offered at 8%, six-month fixed rate special through June 30, 2020. 3 Spring 2020 | myIRIonline.org FINDING CONFIDENCE IN CHAOTIC TIMES Annuities as an income strategy for beleaguered investors Where do we go from here? That’s the big good news is many of those investors are stocks in April of 2007, prior to the Great question on everyone’s minds — individual also revisiting their retirement plans, looking Recession.1 More than a decade after the investors and many professionals included. for stability among uncertainty. Now is the financial sector meltdown that
Recommended publications
  • What Is Dollar Cost Averaging?
    Massachusetts Deferred Compensation SMART Plan Office of State Treasurer and Receiver General EDUCATE What Is Dollar Cost Averaging? SAVE MONEY AND RETIRE TOMORROW Dollar cost averaging is a technique that allows you to regularly contribute money over time to help avoid timing risk (i.e., trying to pick just the right day when prices are low so you can buy more shares).1 • Dollar cost averaging is a simple, systematic investment approach in which you invest a fixed-dollar amount at regular intervals. With your payroll contribution, you are already taking advantage of dollar cost averaging. • With a fixed-dollar amount, you purchase more shares when prices are low, while you purchase fewer shares when prices are high. • Typically, your average cost per share will be lower than your average price per share. How It Works Example: Jennifer wants to invest a total of $2,400 in the market over four months. Month Amount Invested Price per Share Number of Shares Average Price per Share: Sum of Prices $114 January $600 $20 30 Number of Purchases / 4 February $600 $24 25 Average Price per Share $28.50 March $600 $30 20 Average Cost per Share: April $600 $40 15 Total Amount Invested $2,400 Total $2,400 $114 90 Number of Shares / 90 FOR ILLUSTRATIVE PURPOSES ONLY. This hypothetical illustration does not represent the performance of any investment options. Average Cost per Share $26.67 How to Use It If you are currently regular paycheck contributions, then you are already taking advantage of this principle. Otherwise, log on to the website at www.mass-smart.com or call (877) 457-1900 to specify your dollar cost average setup date.
    [Show full text]
  • Dollar Cost Averaging - the Role of Cognitive Error…………….Page 44
    City Research Online City, University of London Institutional Repository Citation: Hayley, S. (2015). Cognitive error in the measurement of investment returns. (Unpublished Doctoral thesis, City University London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: https://openaccess.city.ac.uk/id/eprint/13172/ Link to published version: Copyright: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. Reuse: Copies of full items can be used for personal research or study, educational, or not-for-profit purposes without prior permission or charge. Provided that the authors, title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. City Research Online: http://openaccess.city.ac.uk/ [email protected] COGNITIVE ERROR IN THE MEASUREMENT OF INVESTMENT RETURNS Simon Hayley Thesis submitted for the award of PhD in Finance, Cass Business School, City University London, comprising research conducted in the Faculty of Finance, Cass Business School. April 2015 1 Table of Contents List of Tables and Figures………………………………………………………...page 3 Abstract…………………………………………………………………………….page 6 Summary and Motivation…………………………………………………………page 7 Chapter 1: Literature Review…………………………………………………...page 13 Chapter 2: Dollar Cost Averaging - The Role of Cognitive Error…………….page 44 Chapter 3: Dynamic Strategy Bias of IRR and Modified IRR – The Case of Value Averaging……………………….
    [Show full text]
  • Dollar Cost Averaging a Disciplined Approach to Long-Term Investing
    Dollar Cost Averaging A disciplined approach to long-term investing Dollar cost averaging is a systematic approach to investing. It is a strategy that Is this strategy right for you? overlooks day-to-day market fluctuations and acknowledges the difficulty in pinpointing the best time to invest. Instead, a fixed dollar amount is invested Dollar cost averaging is designed for investors who: regularly over a period of time. While it does not guarantee a profit or protect from a loss, it simply focuses on asset accumulation and avoids guesswork. • Seek a plan to help deal with market fluctuations. Market fluctuations can make it difficult to determine the best time to invest. A • Do not wish to invest all their widely accepted investment strategy called dollar cost averaging can help money at one time. smooth out market fluctuations. The key to this long-term strategy is persistence. Whether the market rises or falls, dollar cost averaging can work in • Can continue the program your favor. That’s because when you dedicate a fixed dollar amount to invest on a through both rising and falling regular basis, your average cost per share over time will be lower than your markets without selling all or average price per share. part of the assets. Accumulating shares When you invest using dollar cost averaging, you: • buy more shares when the price is low • buy fewer shares when the price is high Over time, dollar cost averaging may help you increase the numbers of shares you purchase and, at the same time, decrease your average share price.
    [Show full text]
  • The Basics for Investing in Stocks S K
    The Basics for Investing in Stocks s k By the Editors of Kiplinger’s c Personal Finance magazine o t In partnership with for S 2 | The Basics for Investing in Stocks Table of Contents 1 Different Kinds of Stocks 2 A Smart Way to Buy Stocks 3 What You Need to Know 6 Where to Get the Facts You Need 7 More Clues to Value in a Stock 8 Dollar-Cost Averaging 9 Reinvesting Your Dividends 12 When to Sell a Stock 13 How Much Money Did You Make? 13 Mistakes Even Smart Investors Make & How to Avoid Them 14 Protect Your Money: How to Check Out a Broker or Adviser Glossary of Investment Terms You Should Know About the Investor Protection Trust The Investor Protection Trust (IPT) is a nonprofit organization devot- ed to investor education. Over half of all Americans are now invested in the securities markets, making investor education and protection vitally important. Since 1993 the Investor Protection Trust has worked with the States and at the national level to provide the inde- pendent, objective investor education needed by all Americans to make informed investment decisions. The Investor Protection Trust strives to keep all Americans on the right money track. For additional information on the IPT, visit www.investorprotection.org. © 2005 by The Kiplinger Washington Editors, Inc. All rights reserved. Different Kinds of Stocks | 1 o other investment available holds as much potential as stocks over the long run. Not real estate. Not bonds. Not savings accounts. Stocks aren’t the only things that belong in your investment portfolio, but they may be the most important, whether they’re pur- Nchased individually or through stock mutual funds.
    [Show full text]
  • Maliyyə Bazarları Terminlərinin Izahlı Lüğəti
    MALÈYYß БАЗАРЛАРЫ TERMÈNLßRÈNÈN ÈZAHLI LÖÜßTÈ БАКЫ–2010 Bu nəşr Qiymətli Kağızlar üzrə Dövlət Komitəsinin təşəbbüsü ilə Avropa Birliyi tərəfindən maliyyələşdirilmiş və Yerli İqtisadi İnkişaf Mərkəzi (YİİM) tərəfindən hazırlanmışdır. Nəşrin məzmunu Azərbaycan Respublikasının Qiymətli Kağızlar üzrə Dövlət Komitəsi və Avropa Birliyinin mövqeyini əks etdirmir və məsuliyyəti yalnız YİİM daşıyır. This publication has been prepared by the Center for Local Economic Development (CLED) and funded by the European Union under initiative of the State Committee for Securities. The contents of this publication are the sole responsibility of of the CLED and can in no way be taken to reflect the views of the State Committee for Securities of the Republic of Azerbaijan and European Union MALİYYƏ BAZARLARI TERMİNLƏRİNİN İZAHLI LÜĞƏTİ Bakı, «NURLAR» Nəşriyyat-Poliqrafiya Мərkəzi, 2010, 272s. Bu lüğətdə maliyyə bazarları, o cümlədən qiymətli kağızlar bazarları, fond birjaları, valyuta birjaları, ilkin səhm bazarları, bu bazarlarda həyata keçirilən əməliyyatlar, onların iştirakçıları, istifadə olunan maliyyə alətləri, investisiya fondları, depozit sistemləri, maliyyə hesabatlılığı və bu kimi digər əlaqəli məsələlər üzrə terminlər (Azərbaycan və İngilis dillərində) və onların Azərbaycan dilində izahı əks olunmuşdur. Lüğət geniş oxucu auditoriyası, xüsusən də maliyyə, o cümlədən beynəlxalq maliyyə və maliyyə bazarları ilə əlaqədar məsələlərlə məşğul olan mütəxəssislər, müstəqil ekspertlər, dövlət və özəl təşkilatların işçiləri, maliyyə menecerləri, brokerlər,
    [Show full text]
  • Market Strategy: a Systematic Approach to Recession Investing April 2, 2020
    Market Strategy: A Systematic Approach to Recession Investing April 2, 2020 Amid extremely elevated market volatility and the prospect of a extremely severe recession, investors are seeking guidance on how to best take advantage of cheap assets and the prospect of an eventual recovery. We reiterate our view (discussed most recently in our publication from April 1, Kathryn Rooney Vera here) that we will continue to see extremely ugly economic data Head of Research & Strategy [email protected] (underscored by today’s record-high initial jobless claims), and that given the +1 786.871.3758 inherent uncertainty surrounding a virus that scientists still do not fully understand, pinpointing a precise bottom is virtually impossible. As a result, Gregan Anderson, CFA Macroeconomic Strategist we recommend dollar-cost averaging, putting money to work on an iterative [email protected] basis. +1 786.871.3743 Relative Performance - Market Vs Roll-In Strategy Market Benchmark (SPX Index) Roll-in Portfolio - FOLLOW SCHEDULE Roll-in Portfolio - BUY DIPS 110 105 100 95 90 85 80 Taking the next step, drilling down below index-level investments, requires evaluating likely earnings impacts of the virus on a sector, industry and company level. We highlight three strategies that can help in this regard, with each becoming progressively more important as the pandemic and associated recession evolves. 1. Find the babies thrown out with the bath water 2. Find Sectors that that will benefit from the crisis itself/can help to meet the radical change in immediate needs 3. Imagine the world post-crisis – what will have changed, how will tastes, priorities, and ultimately consumer behavior evolve? 1.
    [Show full text]
  • Another Look at Dollar Cost Averaging Gary Smith Heidi Margaret Artigue
    Another Look at Dollar Cost Averaging Gary Smith Heidi Margaret Artigue Department of Economics Department of Economics Pomona College Pomona College 425 N. College Avenue 425 N. College Avenue Claremont CA 91711 Claremont CA 91711 [email protected] [email protected] Another Look at Dollar Cost Averaging Abstract Dollar cost averaging—spreading an investor’s stock purchases evenly over time—is widely touted in the popular press because of the mathematical fact that the average cost per share is less than the average price. The academic press has generally been skeptical, and attributes dollar cost averaging’s popularity to investor naiveté and cognitive errors. Yet, dollar cost averaging continues to be recommended by knowledgeable investors as a sensible way to avoid ill-timed purchases. We argue that dollar cost averaging is, in fact, an imperfect, but helpful strategy for diversifying investment decisions across time. keywords: dollar cost averaging Another Look at Dollar Cost Averaging An investor following a dollar cost averaging (DCA) strategy periodically invests a constant dollar amount in stocks, adjusting the number of shares purchased as stock prices fluctuate. When stock prices are high, fewer shares are bought; when prices are low, more shares are purchased. Because the average cost weights the purchase prices by the number of shares acquired at each price, the average cost is always less than the average price. This mathematical fact has led many to recommend dollar cost averaging. In several Barron’s columns and multiple editions of Successful Investing Formulas, first published in 1947, Lucile Tomlinson persuasively extolled the virtues of cost-averaging plans.
    [Show full text]
  • Basics of Dollar Cost Averaging Dollar-Cost Averaging Is a Popular Method of Investing for the Long Term
    Basics of Dollar Cost Averaging Dollar-cost averaging is a popular method of investing for the long term. If you’ve been burned before by buying high and selling low, you may want to consider putting your investments on cruise control with dollar-cost averaging. Dollar-cost averaging – the basic premise behind employer-sponsored savings plans like 401(k)s – is the practice of investing a set amount each month in a particular investment vehicle. As the share price of your investment fluctuates, so will the number of shares your set amount buys. Sometimes you’ll pay more and sometimes the stock or mutual fund will decrease in value, allowing you to purchase additional shares. By year-end 2015, Americans had $24.0 trillion invested in IRAs, employer-sponsored savings plans and annuities, according to the Investment Company Institute’s 2016 Investment Company Fact Book. With the vast and varied information available on investing, many Americans have chosen to stop chasing yesterday’s high returns. Using dollar-cost averaging can help them ride out the ups and downs of the market. Dollar cost averaging involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low price levels or changing economic conditions. Dollar cost averaging does not ensure a profit and does not protect against a loss in a declining market. Dollar-cost averaging isn’t for everyone. Short-term investors and those concerned about market volatility won’t benefit from the slow and steady pace of dollar-cost averaging.
    [Show full text]
  • Review on Efficiency and Anomalies in Stock Markets
    economies Review Review on Efficiency and Anomalies in Stock Markets Kai-Yin Woo 1 , Chulin Mai 2, Michael McAleer 3,4,5,6,7 and Wing-Keung Wong 8,9,10,* 1 Department of Economics and Finance, Hong Kong Shue Yan University, Hong Kong 999077, China; [email protected] 2 Department of International Finance, Guangzhou College of Commerce, Guangzhou 511363, China; [email protected] 3 Department of Finance, Asia University, Taichung 41354, Taiwan; [email protected] 4 Discipline of Business Analytics, University of Sydney Business School, Sydney, NSW 2006, Australia 5 Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, 3062 Rotterdam, The Netherlands 6 Department of Economic Analysis and ICAE, Complutense University of Madrid, 28040 Madrid, Spain 7 Institute of Advanced Sciences, Yokohama National University, Yokohama 240-8501, Japan 8 Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taichung 41354, Taiwan 9 Department of Medical Research, China Medical University Hospital, Taichung 40447, Taiwan 10 Department of Economics and Finance, Hang Seng University of Hong Kong, Hong Kong 999077, China * Correspondence: [email protected] Received: 22 December 2019; Accepted: 4 March 2020; Published: 12 March 2020 Abstract: The efficient-market hypothesis (EMH) is one of the most important economic and financial hypotheses that have been tested over the past century. Due to many abnormal phenomena and conflicting evidence, otherwise known as anomalies against EMH, some academics have questioned whether EMH is valid, and pointed out that the financial literature has substantial evidence of anomalies, so that many theories have been developed to explain some anomalies.
    [Show full text]
  • Sales Representatives Manual 2020 ● Volume 1 3 Chapter 1
    Sales Representatives Manual Volume 1 2020 Foreword Financial instruments business operators and registered financial institutions play very important roles as market intermediaries in order to ensure that the financial markets can properly exert their function to distribute funds efficiently through market mechanisms, and they are entrusted with an important social mission. Accordingly, Sales Representatives engaged in the financial instruments business are required to have a great deal of expertise in financial instruments, as well as a high awareness and consciousness of compliance and strong professional ethics. To meet the goals above, the Japan Securities Dealers Association (JSDA) administers the Sales Representative Qualification Examinations in accordance with its self-regulatory rules from the perspective of achieving a suitable level of quality on the part of Sales Representatives, in order to ensure that Sales Representatives who belong to Association Members (financial instruments business operators and registered financial institutions) will respond to the trust placed in them by society and carry out their activities appropriately. The present Manuals provide explanations concerning laws and regulations that people engaged in the Type I financial instruments business need to understand, as well as the various products and operations with which they deal in their business. These Manuals are expected to serve as reference materials for such people to acquire the knowledge necessary for acting as Sales Representatives. The 2020 edition has been edited based on the laws, regulations, rules and systems, etc. in effect or publicly available as of September 1, 2019 in principle, which may be subject to revision in the future. It should be noted that with the enactment of the Financial Instruments and Exchange Act in 2007, the legal names of entities such as securities companies and exchanges governed by this legislation have respectively been changed to financial instruments business operators, etc.
    [Show full text]
  • Avoiding Emotional Investing Decisions Mohd Sedek Jantan Standard Financial Adviser Sdn Bhd When Instability Occurs in the Marke
    Avoiding Emotional Investing Decisions Mohd Sedek Jantan Standard Financial Adviser Sdn Bhd When instability occurs in the market, emotions are involved in investments. During turbulent economic times, one may be tempted to perform drastic actions on the investment portfolio, such as withdrawing investment to their fixed deposit. An exemplary situation is when an adviser invested RM100,000 of an individual’s money and the value is reduced to RM80,000. There may be various reactions towards this RM20,000 loss, be it selling all or some of the investments, buying more of the investments, or not performing any actions at all. These possible reactions from different individuals will provide important insights into risk profiling. Considering the volatile market condition, understanding investment risk and implementing a systematic investment plan would assist one in meeting long-term financial goals. a. Volatility, Market Information, and Noise Traders Proper research prior to investment is crucial. It is important to understand the types of risk associated with the investment. However, investors tend to be confused between the concepts of ‘risk’ and ‘volatility’. In financial terminology, ‘risk’ refers to the probability of losing an investment capital based on the expected return on any particular investment. Meanwhile, volatility measures price fluctuations in a security, portfolio, or market segment. An investor will have little or no control over any of these segments. The information regarding the changes in the company’s management team or announcement for share dividend payouts would usually result in stock price volatility. Based on the efficient market hypothesis, information is placed into security prices within a high speed that investors would not gain an opportunity to profit from the publicly available information.
    [Show full text]
  • Introduction to Financial Markets
    UNIT THE BASICS 2 UNIT 2 I Introduction to Financial Markets TEACHING STANDARDS/KEY TERMS ■ 12(b)-1 fees ■ “Blue chip” companies ■ Bond market ■ Caveat emptor ■ Commodity Futures Trading Commission (CFTC) ■ Common vs. preferred stock ■ Consumer ■ Consumer Financial Protection Board (CFPB) ■ Coupon rate ■ Dividend ■ Dollar cost averaging ■ Dow Jones Industrial Average (DJIA) ■ Economic growth ■ Economic indicators ■ Economy ■ Exchange ■ Financial Industry Regulatory Authority (FINRA) ■ Financial markets ■ Free enterprise system ■ Futures ■ Gross domestic product ■ Load vs. no-load ■ Market economy ■ Markets ■ Mutual funds ■ NASDAQ Stock Market ■ Net Asset Value (NAV) ■ New York Stock Exchange (NYSE) ■ North American Securities Administrators Association (NASAA) 2020 INVESTOR EDUCATION 2 I 1 UNIT 2 THE BASICS ■ Private vs. public companies ■ Prospectus ■ Risk tolerance ■ Securities and Exchange Commission (SEC) ■ State securities regulators ■ Stock ■ Stock market ■ Supply vs. demand Unit Objectives: INDIVIDUALS WILL: ■ Understand the relationship between risk and return. ■ Learn about U.S. financial markets and investment products. ■ Explore conditions that affect market prices. ■ Grasp the extent and limits of government regulation of the financial markets. Unit Teaching Aids: LESSON 1: Myths Vs. Realities: Risk and Returns (Handout/Overhead) How Financial Markets Work LESSON 2: Market Questionnaire (Worksheet) Public and Private Companies Company Questionnaire (Worksheet) LESSON 3: Reading Stock Tables (Handout) What Makes Stock Prices Rise and Fall? Evaluating Stock Prices (Worksheet) LESSON 4: The Role of Government in Securities Regulation Securities Regulation Research Project (Worksheet) UNIT TEST: (Test and Answer Key) INVESTOR EDUCATION 2020 2 I 2 UNIT THE BASICS 2 For Instructors Why Teach This Unit? The youth and young adults of today are the investors of tomorrow … or should be.
    [Show full text]