C12S2: Investment Strategies and Financial Assets

1. C12S2: Investment Strategies and Financial Assets • Main Idea: • To invest wisely, investors must identify their goals and analyze the risk and return involved.

2. C12S2: Investment Strategies and Financial Assets • Key Terms: • Risk • Maturity • Par value • Tax exempt • Current yield • Money market • Primary market • Secondary market

3. C12S2: Investment Strategies and Financial Assets • Basic Investment Considerations: • The Risk-Return Relationship • The higher the risk, the higher the potential return (money) on your investment

4. C12S2: Investment Strategies and Financial Assets • Basic Investment Considerations: • Investment Objectives • Why you are saving affects how you save • Where the money comes from will also change the behavior of saving • Consider your circumstances before investing

5. C12S2: Investment Strategies and Financial Assets • Basic Investment Considerations: • Simplicity • You don’t have to know everything to invest • Stick to what you know • Consistency • If you keep investing, you will have better luck

6. C12S2: Investment Strategies and Financial Assets • Basic Investment Considerations: • 401(k) Plans • Works as a retirement plan • Employees authorize payroll deductions which go into mutual funds

7. C12S2: Investment Strategies and Financial Assets • Bonds as Financial Assets • Used to borrow funds for long periods • Bond Components: • Coupon • Maturity • Par value • Bond Prices • Must consider the life of the business before buying a bond

8. C12S2: Investment Strategies and Financial Assets • Bonds Ratings • Credit system rates companies for bonds and how likely it is that they will pay off • Classifications: Page 322, fig. 12.5

9. C12S2: Investment Strategies and Financial Assets • Financial Assets and Their Characteristics • Certificates of Deposit • Loans to financial institutions • Penalties for early withdrawal • Simple, safe investment • Corporate Bonds • Prices vary, risks vary • Junk bonds have low ratings, high rewards • Usually long-term investments

10. C12S2: Investment Strategies and Financial Assets • Financial Assets and Their Characteristics • Municipal Bonds • Called ‘munis’ • Issued by state and local governments • Tax-exempt way to invest money • Federal Savings Bonds • Bought at half their face value • Interest is added to the value until it reaches the date it can be redeemed • Very safe investment, but slow and small returns

11. C12S2: Investment Strategies and Financial Assets • Financial Assets and Their Characteristics • Treasury Notes and Bonds • Issued when the gov’t borrows money for over a year • Notes: Maturity 2-10 years • Bonds: Maturity 10-30 years • Safest investments • Treasury Bills • T-Bills pay after a number of weeks • IRAs • Employees can set these up to help with retirement

12. C12S2: Investment Strategies and Financial Assets • Markets for Financial Assets • Capital Markets • Money is loaned for more than one year • Money Market • Money is loaned for less than one year

13. C12S2: Investment Strategies and Financial Assets • Markets for Financial Assets • Primary Markets • Nontransferable investments • Secondary Markets • Existing assets can be resold to new owners