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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

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stages of investing1
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
Risk and Return
  • Investing risk- chance that an investment’s value will decrease
    • The greater the risk the greater the potential return
diversification
Diversification
  • Spreading of risk among many types of investments
    • Stocks, bonds, real estate
    • Low risk stocks to balance high risk
  • Minimizes risk
types of risk
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
types of risk1
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
types of risk2
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
criteria for choosing an investment
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
wise investment practices
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
sources of financial information
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
broker vs financial advisers
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.
investment choices
Investment Choices
  • Low Risk/Low Return
  • Medium Risk/Medium Return
  • High Risk/High Return
low risk low return
Low Risk/ Low Return
  • Good for first investments
  • Safe
  • Low return
  • Include in diversified portfolio
low risk low return1
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
low risk low return2
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
medium risk medium return
Medium Risk/ Medium Return
  • Once you have additional money to invest
  • Increase return
  • Investing with companies that manage the investment
medium risk medium return1
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
medium risk medium return2
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
high risk high return
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