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LESSON: STOCK MARKET SMART
Lesson Summary
In a very readable, question-answer format, your students will learn all about the stock market - what the stock market is, how it works, and how one can use it to build wealth for the future. Your students will learn a personal approach to investing based on personal, long and short-term goals. A glossary, list of popular web site, and other references are included.
Concept: Market
Definition: A market exists whenever people buy and sell goods and services. In a stock market, people buy and sell shares of specific stocks. These shares represent ownership in the company.
Comprehension Questions:
Stock Market Smart has a question-answer format throughout the book. Many questions are answered, but below are some key questions that you should present to your students.
What is a stock?
A share of stock represents ownership in a company. When a person buys a share of stock, he actually becomes a part owner in the company.
Why do companies issue stock?
Companies issue stock in order to raise financial capital to start or expand the company’s business operations.
How does a company’s profits affect the value of a stock?
If a company makes good profits, the value of the shares typically goes up. If the company doesn’t make a profit, the shares will likely fall. Over time, a company must make a profit to remain in business.
What are dividends?
Dividends are payments to stockholders that represent their share of the company profits. Sometimes companies don’t give dividends. Instead they invest the profits back into the business.
What are capital gains?
Capital gains are profits that one makes on the sale of an investment, such as stocks. A person must pay capital gains taxes on these earnings.
What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average is an indicator of how the entire stock market is performing, base on the price of a certain thirty “blue-chip” stocks. The average was developed in 1896 by journalist Charles H. Dow. The Standard & Poors 500 Index and the Nasdaq Index are other popular stock averages.
How do you buy stocks?
Many people buy stocks through a stockbroker, who work for broker-dealer firms. Some are full-service firms, while others, called discount brokers, offer more limited services to investors. Stockbrokers earn a commission for their services. You may also purchase stocks from broker-dealer firms by using the Internet.
Why should you consider short and long term financial goals before investing in the stock market?
It is important to list long term and short term financial goals because every investment – including stocks – has a certain level of risk. A person who plans to use his savings in the near future would not want to invest in a risky investment that could lose value.
What is the relationship between risk and reward?
Generally speaking, the higher the possible return (reward) on an investment, the riskier it will be.
How can you avoid being “scammed” when you purchase stocks or other investments?
Unfortunately, some dishonest people may try to “scam” people who make investments. For example, these people may try to convince you that their investment will give you a “guaranteed” high return, or that you must act immediately to get in on the investment. Before you invest, you should always investigate whether or not the firm is reputable. The best place to do this is to contact your state Securities Regulator.
Other Concepts: Saving, Investing
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