Investing Fundamentals

1
Investing Fundamentals

• Chapter 11

2
Stages of Investing

• Stage 1. Put-and-take account
• Stage 2. Beginning investing
• Stage 3. Systematic investing
• Stage 4. Strategic investing
• Stage 5. Speculative investing

3
Reasons for Investing

• Investing helps beat inflation.
• Investing increases wealth.
• Investing is fun and challenging.

4
Risk and Return

• Diversification
• Types of risk
• Interest-rate risk
• Political risk
• Market risk
• Company or industry risk

5
Criteria for Choosing an Investment

• Safety
• High liquidity
• High dividends or interest
• Growth in value that exceeds the inflation rate
• Reasonable purchase price
• Tax benefits

6
Wise Investment Practices

• Define your financial goals.
• Go slowly.
• Follow through.
• Keep good records.
• Seek good investment advice.
• Keep investment knowledge current.
• Know your limits.

7
Sources of Financial Information

• Newspapers
• Investor services and newsletters
• Financial magazines
• Brokers
• Financial advisers
• Annual reports and financial statements
• Online investor education

8
Investment Options

• Low risk low-to-medium return
• Medium risk medium return
• High risk high return

9
Low RiskLow-to-Medium Return

• Corporate and municipal bonds
• U.S. government savings bonds
• Treasury securities

10
Medium RiskMedium Return

• Mutual funds
• Annuities
• Self-managed retirement accounts
• Real estate

11
High RiskHigh Return

• Stocks and trading instruments
• Futures
• Options
• Penny stocks
• Collectibles