Download Diversification of your Portfolio

Diversification of your
Portfolio
Stock Lesson
Learning Target
 I can explain why is it important to
diversify your stock portfolio.
Why Diversify?
 Less risk of losing money when markets
go down.
 Greater return on investment over time.
 Greater average rate of return over time.
Industry Terminology
 Cyclical Stocks- Stocks whose
performance tend to mirror the economy.

Example- Real Estate Company’s
 Economy
is up = Housing Market up
 Economy is down = Housing Market Down
Industry Terminology Cont’d

Industry


Net Income:



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:


Total earnings after all expenses and taxes have been paid.
Profit:


: A group of companies producing similar products or services.
Revenue is the money collected for providing a product or service.
Sector:


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…
 Retail


JC Penny
Dillard's
 If you were deciding to buy stock in this
industry where could you research these
company’s?
 What would you look for?
 How would you decide which one to
invest in?
Cash Balance with SMG
 Maintain a cash balance no greater than
25,000

You earn a generous 5% on your cash
balance
 Do not use all or more than all of your
cash balance

You pay 7% interest per day to borrow
money if you are negative.
 Do not have more than 30% of your
portfolio invested in one stock.
Stock Group Activity
 Create a list using Excel of companies in several different
industries that you would consider investing.
 Compare each of these stocks with a similar company in
the same industry.
 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.
 How diversified is your portfolio? Explain using examples.