Chapter 11 Investing for Your Future

1
Chapter 11 - Investing for Your Future

• Part 1
• By Scott Feil
• 1/3/06

2
Overview

• Stages of Investing
• Reasons for Investing
• Risk and Return
• Investment Strategies

3
Stages of Investing

• Stage 1 Put-and-Take Account
• AKA Emergency Fund
• Checking/Savings Account
• Temporary, Short-term Savings
• Very Safe
• Should have 3-6 months pay in this account

4
Stages cont.

• Stage 2 Beginning Investing
• Investing Use of savings to earn a financial
  return
• Use permanent savings
• Conservative or low risk investments
• Stage 3 Systematic Investing
• Set aside a certain amount each month
• Retirement planning/Planning for the future
• Higher risk investments

5
Stages cont.

• Stage 4 Strategic Investing
• Manage investment portfolio to maximize growth
• Portfolio collection of investments
• Diversify your investments Invest in many
  different kind of securities to maximize returns
• Stage 5 Speculative Investing
• Money left over after the other stages
• Very high risk, possibility of very high returns
• Many investors never speculate
• Tulip story

6
Reasons for Investing

• Investing helps beat inflation
• Inflation A rise in the general level of prices
• Prices based on the Consumer Price Index
• Inflation Calculator or Price Comparisons
• If inflation is 6 you have to earn more interest
• Investing Increases Wealth
• You earn more on investments than savings
• Investing is Fun and Challenging
• Try an online investing game

7
Risk and Return

• Risk The chance that an investments value will
  decrease
• Return The profit made on an investment
• Diversification
• Spread risk among many types of investments
• Stocks, bonds, real estate
• Also, diversify among different types of stocks
• What are some low risk/high risk stocks?
• Not all investments will be bad at the same time

8
Risk Return cont.

• Types of Risk
• Short term is less risky than long term
• You can predict tomorrow better than next year
• Inflation risk or interest-rate risk
• Will your investment keep up with inflation?
• Should you buy a 5 10-year CD now?
• Political risk
• Government actions can affect business conditions
• Market, industry, and company risk
• Market affected by world events - 9/11
• Industry and companies affected by other events -
  Y2K
• McDonalds and Super-Size Me/obesity scare

9
Investment Strategies

• Criteria for choosing an investment
• Safety (minimal risk of loss)
• High liquidity (easy to get money out)
• High dividends or interest
• Growth in value that exceeds inflation
• Reasonable (low) purchase price (initial cost)
• Tax benefit (postpone tax liability)

10
Wise Investment Practices

• Define your financial goals
• Must be measurable
• Go slowly
• Due diligence Do your research first
• Follow through
• Dont plan forever and never do it
• Dont leave too much money in emergency fund
• Keep good records
• To make a goal you need to know where you are and
  where youve been

11
Wise Investment, cont.

• Seek good investment advise
• Ask an expert, find a financial advisor
• Dont listen to cousins friends roommate
• Keep investment knowledge current
• Look for new industries
• Simpsons Mr. Burns
• Know your limits
• Know how much you can afford to risk
• Your personality and age affects your risk
  tolerance