Chapter 1 investment fundamentals
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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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Chapter 1 investment fundamentals

Chapter 1: Investment Fundamentals


Objectives

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


Establishing investment goals

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?


Investment fundamentals

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!


Preparations for investing

Achieve financial goals

Increase current income

Gain wealth and financial security

Have funds available for retirement

Preparations for Investing

WHY PEOPLE INVEST:


Preparations for investing1

Live within means

Continue savings program

Establish lines of credit

Carry adequate insurance

Establish investment goals

Preparations for Investing

PREREQUISITES TO INVESTING:


Preparations for investing2

Interest

Dividends

Rent

Capital gain/loss

Rate of return or yield

Preparations for Investing

INVESTMENT RETURNS:


Factors that affect investment decisions

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


Income from investments

Income From Investments

  • Safest

    • CDs

    • savings bonds

    • T-bills

  • Higher potential income

    • municipal bonds

    • corporate bonds

    • preferred stocks

    • mutual funds

    • real estate


Investment proess

INVESTMENT PROESS


Investment policy

INVESTMENT POLICY


Analysis

ANALYSIS


Valuation

VALUATION

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


Consruction of portfolio

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.


It includes the following

IT INCLUDES THE FOLLOWING


Evaluation

EVALUATION


Speculation

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.


Difference between speculator and investor

DIFFERENCE BETWEEN SPECULATOR AND INVESTOR


Gambling

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.


Investment alternatives

Investment Alternatives

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


Investment alternatives1

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


Investment alternatives2

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


Sources of investment information

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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