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Chapter 1: Investment Fundamentals

Chapter 1: Investment Fundamentals. Summarize reasons why people invest, what is required before beginning, how returns are earned, and some ways to obtain funds to invest. Determine your own investment philosophy. Recognize the variety of investments available.

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Chapter 1: Investment Fundamentals

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  1. Chapter 1: Investment Fundamentals

  2. Summarize reasons why people invest, what is required before beginning, how returns are earned, and some ways to obtain funds to invest. Determine your own investment philosophy. Recognize the variety of investments available. Identify the major factors that affect the return on investment. Specify some strategies of portfolio management for long-term investors. List three guidelines to use when deciding the best time to sell investments. Objectives

  3. Establishing Investment Goals • Financial goals should be specific and measurable. • Why are you accumulating these funds? • How much do you need? • How will you get it? • How long will it take you to reach your goal? • How much risk are you willing to assume? • Are you willing to sacrifice current consumption to invest for the future? • Is it realistic to try and save this amount?

  4. Difference in return is a major distinction between savings and investing. Successful investors begin to live off earnings, without spending wealth itself. Investment Fundamentals ATTENTION!

  5. Achieve financial goals Increase current income Gain wealth and financial security Have funds available for retirement Preparations for Investing WHY PEOPLE INVEST:

  6. Live within means Continue savings program Establish lines of credit Carry adequate insurance Establish investment goals Preparations for Investing PREREQUISITES TO INVESTING:

  7. Interest Dividends Rent Capital gain/loss Rate of return or yield Preparations for Investing INVESTMENT RETURNS:

  8. Factors That Affect Investment Decisions • Safety - minimal risk of loss • Risk - uncertainty about the outcome • inflation risk • interest rate risk • business failure risk • market risk

  9. Income From Investments • Safest • CDs • savings bonds • T-bills • Higher potential income • municipal bonds • corporate bonds • preferred stocks • mutual funds • real estate

  10. INVESTMENT PROESS

  11. INVESTMENT POLICY

  12. ANALYSIS

  13. VALUATION • VALUATION HELPS THE INVESTOR TO DETERMINE THE RETURN AND RISK EXPECTED FROM AN INVESTMENT IN THE COMMON STOCK.

  14. CONSRUCTION OF PORTFOLIO • A PORTFOLIO IS A COMBINATION OF SECURITIES. IT IS CONSTUCTED IN SUCH A MANNER TO MEET THE INVESTOR’S GOALS AND OBJETIVES.

  15. IT INCLUDES THE FOLLOWING

  16. EVALUATION

  17. SPECULATION • IT MEANS TAKING UP THE BUSINESS RISK IN THE HOPE OF GETTING SHORT TERM GAIN.A SPECULATOR IS MORE INTERESTED IN THE MARKET ACTIONS AND ITS PRICE MOVEMENT.

  18. DIFFERENCE BETWEEN SPECULATOR AND INVESTOR

  19. GAMBLING • A GAMBLE IS USUALLY A VERY SHORT TERM INVESTMENT IN A GAME OR CHANCE.TIME IS SHORTER THAN SPECULATION AND INVESTMENT.PEOPLE GAMBLE AS A WAY TO ENTERTAIN THEMSELVES, EARNING INCOMES WOULD BE SECONDARY FACTOR.

  20. Investment Alternatives • SECURITIES:A.T. SECURITIES REGULATION ACT 1956,”SECURITIES INCLUDE SHARES,STOCKS,BONDS,DEB OR OTHER MARKETABLE SECURITIES.

  21. Investment Alternatives (continued) • What is a bond? • a loan to a corporation, the federal government, or a municipality • The interest is paid twice a year, and the principal isrepaid at maturity (1-30 years) • You can keep the bond until maturity or sell it to another investor

  22. Investment Alternatives (continued) • What is a mutual fund? • investors’ money is pooled and invested by a professional fund manager • you buy shares in the fund • provides diversification to reduce risk • funds range from conservative to extremely speculative • match your needs with a fund’s objective

  23. Sources of Investment Information • Newspapers • Business Periodicals • Government Publications • Corporate Reports • Statistical Averages • Investor Services and newsletters • Standard and Poor’s stock reports • Value Line • Moody’s investment service

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