Diversification of your Portfolio Stock Lesson Learning

Diversification of your Portfolio Stock Lesson

Learning Target o I can explain why is it important to diversify your stock portfolio.

Why Diversify? o Less risk of losing money when markets go down. o Greater return on investment over time. o Greater average rate of return over time.

Industry Terminology o Cyclical Stocks- Stocks whose performance tend to mirror the economy. n Example- Real Estate Company’s p Economy is up = Housing Market up p Economy is down = Housing Market Down

Industry Terminology Cont’d o Industry n o Net Income: n o n What remains after subtracting a company’s costs from its revenue. Profit is a company’s reward for taking a risk and successfully producing what people want to buy at prices they are willing to pay. Revenue: n o Total earnings after all expenses and taxes have been paid. Profit: n o : A group of companies producing similar products or services. Revenue is the money collected for providing a product or service. Sector: n n A group of stocks, often in one industry. The performance of any single stock in a sector can be measured against the performance of the group. Pharmaceutical companies, for example, are part of the health care sector.

Lets look at an industry… o Retail n JC Penny n Dillard's o If you were deciding to buy stock in this industry where could you research these company’s? o What would you look for? o How would you decide which one to invest in?

Cash Balance with SMG o Maintain a cash balance no greater than 25, 000 n You earn a generous 5% on your cash balance o Do not use all or more than all of your cash balance n You pay 7% interest per day to borrow money if you are negative. o Do not have more than 30% of your portfolio invested in one stock.

Stock Group Activity o Create a list using Excel of companies in several different industries that you would consider investing. o Compare each of these stocks with a similar company in the same industry. o How is that company doing compared to yours? Better or worse? Justify your answer in a Word Document, and provide reasons as to why you would invest in each of these stocks. o How diversified is your portfolio? Explain using examples.