1 / 22

Basic Investing Concepts

Basic Investing Concepts. Stages of Investing. Stages of Investing. In Stage 4: Strategic Investing you carefully manage investment alternatives to maximize growth of your portfolio Collection of investments . Risk and Return. Investing risk- chance that an investment’s value will decrease

evelia
Download Presentation

Basic Investing Concepts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Basic Investing Concepts

  2. Stages of Investing

  3. Stages of Investing • In Stage 4: Strategic Investing you carefully manage investment alternatives to maximize growth of your portfolio • Collection of investments

  4. Risk and Return • Investing risk- chance that an investment’s value will decrease • The greater the risk the greater the potential return

  5. Diversification • Spreading of risk among many types of investments • Stocks, bonds, real estate • Low risk stocks to balance high risk • Minimizes risk

  6. Types of Risk • Interest-Rate risk- chance that inflation will rise faster than the return on your investments • Inflation makes your fixed-rate investments worth less because they are “locked in” at lower rates • Political risk- actions the government might take that would reduce the value of your investment

  7. Types of Risk • Market risk- caused by the business cycle– periods of economic growth or decline • Nonmarket risk- unrelated to market trends; unpredictable and uncontrollable • Terrorism threats, people change their behavior and want to protect themselves

  8. Types of Risk • Company risk- associated with owning one company’s stock, if the company fails you lose investment • Industry risk- affects groups of businesses • If you invest in the candy industry, a nationwide trend toward dieting or avoidance of sugar would negatively affect the value

  9. Criteria for Choosing an Investment • Degree of safety • Degree of liquidity • Expected dividends or interest • Expected growth in value • Reasonable purchase price and fees • Tax benefits

  10. Wise Investment Practices • Define your financial goals • Go slowly • Temporary investments • Follow through • Permanent investments • Keep good records • Seek good investment advice • Keep investment knowledge current • Know your limits

  11. Making Investment choices

  12. Sources of Financial Information • Newspapers • Financial pages of your local newspaper • Wall Street Journal • Investor Services and Newsletters • Financial Magazines • Business Week, Forbes, Money, Fortune, Kiplinger’s Personal Finance, The Economist • Brokers • Financial Advisers • Annual Reports • Online Investor Education

  13. Broker vs Financial Advisers • Full service- provide clients with analysis and opinions based on their judgments • Merrill Lynch, Fidelity Investments, American Express • Discount- buy and sell securities at a reduced commission • For people who are well informed and know what they want to buy and sell • E*Trade, Charles Schwab • Certified Financial Planner (CFP) • Trained to give investment advice based on your goals, age, lifestyle, and other factors.

  14. Investment Choices • Low Risk/Low Return • Medium Risk/Medium Return • High Risk/High Return

  15. Investment Choices

  16. Low Risk/ Low Return • Good for first investments • Safe • Low return • Include in diversified portfolio

  17. Low Risk/ Low Return • Bonds • Debt obligations of corporations (corporate bonds) or state or local governments (municipal bonds) • IOU • Earn interest • Repay amount borrowed at maturity • U.S. Government Savings Bonds • Series EE- discount bond, purchased for less than the maturity value (half) • Series I- sold at face value and earn interest for up to 30 years, designed for investors wanting to protect against inflation

  18. Low Risk/ Low Return • Treasury Securities • U.S. Treasury Bills- short term • U.S. Treasury Notes- matures in 2,5, or 10 years • U.S. Treasury Bonds- interest paid every 6 months and matures in 30 years

  19. Medium Risk/ Medium Return • Once you have additional money to invest • Increase return • Investing with companies that manage the investment

  20. Medium Risk/ Medium Return • Stocks • Unit of ownership in a corporation • Stock certificate is evidence of ownership • Stockholders share in corporation’s profits called dividends • Riskier than savings bonds, earnings go up or down depending on company’s profits • Investing in well-established companies are safe • Less-stable company= risky investment

  21. Medium Risk/ Medium Return • Mutual Funds • Pooling of money from many investors to buy a large selection of securities • Professionally managed • Allows for portfolio diversification • Annuities • Contract that provides the investor with a series of regular payments, after retirement • Opposite of life insurance • Real Estate • Large, non-liquid investment of cash • Houses and land

  22. High Risk/ High Return • Futures- contracts to buy and sell commodities or stocks for a specified price on a specified date in the future • Options- right, not obligation, to buy or sell a commodity or stock for a specified price within a specified period of time • Penny stocks- are low-priced stocks of small companies that no track record • Collectibles- coins, art, memorabilia, ceramics, or other items popular at the time

More Related