Personal Financial Planning Guide Chapter 3-6: Building Wealth through Investment Planning
Investment Planning Steps <ul><li>Steps to investment planning: </li></ul><ul><ul><li>Set goals </li></ul></ul><ul><ul><li...
Step 1: Financial Goals <ul><li>Factors affecting financial goals: </li></ul><ul><ul><li>__________________ horizon </li><...
Personal Profile <ul><li>Your investment profile includes </li></ul><ul><ul><li>_______________________ </li></ul></ul><ul...
Step 2: Investment Vehicles <ul><li>Major categories of investments </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>...
Categories of Investments: Cash <ul><li>Cash includes any asset with high liquidity and little or no risk.  </li></ul><ul>...
Categories of Investments: Bonds <ul><li>Bonds are debt instruments issued by corporations and governments.  </li></ul><ul...
Categories of Investments: Bonds <ul><li>Types of bonds </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>US Gove...
Categories of Investments: Municipal Bonds <ul><li>The interest earned on municipal bonds is frequently exempt from ______...
Categories of Investments: Stocks <ul><li>Common stock provides return through dividends and capital gains. </li></ul>
Step 3: Know Financial Markets and Concepts <ul><li>Important financial concepts: </li></ul><ul><ul><li>________________ <...
Financial Concepts: Return <ul><li>Historical returns can be observed and measured, but what is important to investors are...
Financial Concepts: Risk <ul><li>Investments, by risk (low to high) </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>...
Financial Concepts: Portfolio Structure <ul><li>Diversification by itself does not increase returns. However, by diversify...
Step 4: Develop Investment Strategy <ul><li>One of the most important parts of your investment strategy, is ____________ _...
Investment Strategy (Cont.) <ul><ul><li>Another important consideration: take advantage of payroll deduction: </li></ul></...
Investment Strategy (Cont.) <ul><ul><li>Another important consideration: take advantage of tax shelters. </li></ul></ul><u...
Step 5: Implement Your Strategy <ul><li>Implementing your financial plan includes: </li></ul><ul><ul><li>Who to invest wit...
Implement Your Strategy <ul><li>Your financial plan can be implemented with: </li></ul><ul><ul><li>A financial planner </l...
Implement Your Strategy <ul><li>When to buy: on a ___________________ ________________. </li></ul><ul><li>One of the bigge...
Step 6: Monitor Performance <ul><li>It is important to measure investment returns and to compare your returns with _______...
Mutual Funds <ul><li>The most popular method of investing in stocks and bonds is through mutual funds. </li></ul><ul><li>W...
Mutual Funds <ul><li>Mutual funds offer: </li></ul><ul><ul><li>Professional management </li></ul></ul><ul><ul><li>Record k...
Types of Mutual Funds <ul><li>Mutual funds can be classified by the types of assets they hold: </li></ul><ul><ul><li>Stock...
Types of Mutual Funds <ul><li>Mutual funds can also be classified as:  </li></ul><ul><ul><li>Domestic </li></ul></ul><ul><...
Mutual Funds <ul><li>Cost of investing in mutual funds include: </li></ul><ul><ul><li>Front-end and back-end loads </li></...
Mutual Fund Information <ul><li>Sources of info on mutual funds include: </li></ul><ul><ul><li>Morningstar </li></ul></ul>...
How to Pick a Mutual fund <ul><li>In comparing mutual funds, look for: </li></ul><ul><ul><li>No _________________ </li></u...
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Personal Financial Planning Guide Chapter 3-6: Building ...

  1. 1. Personal Financial Planning Guide Chapter 3-6: Building Wealth through Investment Planning
  2. 2. Investment Planning Steps <ul><li>Steps to investment planning: </li></ul><ul><ul><li>Set goals </li></ul></ul><ul><ul><li>Know investment vehicles </li></ul></ul><ul><ul><li>Know financial markets and concepts </li></ul></ul><ul><ul><li>Develop strategy </li></ul></ul><ul><ul><li>Implement strategy </li></ul></ul><ul><ul><li>Monitor performance </li></ul></ul>
  3. 3. Step 1: Financial Goals <ul><li>Factors affecting financial goals: </li></ul><ul><ul><li>__________________ horizon </li></ul></ul><ul><ul><li>__________________ </li></ul></ul><ul><ul><li>Your _________________________ situation </li></ul></ul><ul><ul><li>Personal profile </li></ul></ul>
  4. 4. Personal Profile <ul><li>Your investment profile includes </li></ul><ul><ul><li>_______________________ </li></ul></ul><ul><ul><li>_______________________ </li></ul></ul><ul><ul><li>_______________________ needs </li></ul></ul><ul><ul><li>_______________________ needs </li></ul></ul><ul><ul><li>_______________ rate </li></ul></ul><ul><ul><li>_______________ tolerance </li></ul></ul>
  5. 5. Step 2: Investment Vehicles <ul><li>Major categories of investments </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Bonds </li></ul></ul><ul><ul><li>Stocks </li></ul></ul><ul><ul><li>Other (real estate, gold, etc.) </li></ul></ul>
  6. 6. Categories of Investments: Cash <ul><li>Cash includes any asset with high liquidity and little or no risk. </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Bank accounts </li></ul></ul><ul><ul><li>__________________________ mutual funds </li></ul></ul><ul><ul><li>US Treasury bills </li></ul></ul><ul><ul><li>Savings bonds </li></ul></ul>
  7. 7. Categories of Investments: Bonds <ul><li>Bonds are debt instruments issued by corporations and governments. </li></ul><ul><li>Advantages of bonds </li></ul><ul><ul><li>Regular _________________ </li></ul></ul><ul><ul><li>Diversify other investments </li></ul></ul>
  8. 8. Categories of Investments: Bonds <ul><li>Types of bonds </li></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>US Government </li></ul></ul><ul><ul><li>Municipal </li></ul></ul><ul><ul><li>Mortgage-backed securities </li></ul></ul>
  9. 9. Categories of Investments: Municipal Bonds <ul><li>The interest earned on municipal bonds is frequently exempt from ______________ ___________. </li></ul><ul><li>In choosing between bonds, you must always consider the after-tax return. </li></ul><ul><li>Municipal bonds: </li></ul><ul><ul><li>Good for investors with high _____________. </li></ul></ul><ul><ul><li>Bad in a ______________________ account. </li></ul></ul>
  10. 10. Categories of Investments: Stocks <ul><li>Common stock provides return through dividends and capital gains. </li></ul>
  11. 11. Step 3: Know Financial Markets and Concepts <ul><li>Important financial concepts: </li></ul><ul><ul><li>________________ </li></ul></ul><ul><ul><li>________________ </li></ul></ul><ul><ul><li>Portfolio structure/asset allocation </li></ul></ul>
  12. 12. Financial Concepts: Return <ul><li>Historical returns can be observed and measured, but what is important to investors are ____________________ returns. </li></ul>
  13. 13. Financial Concepts: Risk <ul><li>Investments, by risk (low to high) </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>US government securities </li></ul></ul><ul><ul><li>Investment grade bonds (corp., muni) </li></ul></ul><ul><ul><li>Stock and junk bonds </li></ul></ul>
  14. 14. Financial Concepts: Portfolio Structure <ul><li>Diversification by itself does not increase returns. However, by diversifying, you reduce ________________. </li></ul>
  15. 15. Step 4: Develop Investment Strategy <ul><li>One of the most important parts of your investment strategy, is ____________ ________________________: </li></ul><ul><ul><li>Identify asset classes to be included </li></ul></ul><ul><ul><li>Determine % to be invested in each </li></ul></ul><ul><ul><li>Periodically rebalance </li></ul></ul>
  16. 16. Investment Strategy (Cont.) <ul><ul><li>Another important consideration: take advantage of payroll deduction: </li></ul></ul><ul><ul><ul><li>Payroll deduction makes saving and investing automatic. </li></ul></ul></ul><ul><ul><ul><li>By investing every month, you take advantage of “_________________________________________.” </li></ul></ul></ul>
  17. 17. Investment Strategy (Cont.) <ul><ul><li>Another important consideration: take advantage of tax shelters. </li></ul></ul><ul><ul><ul><li>Tax shelters (401k accounts, IRAs) ______________ payment of taxes. </li></ul></ul></ul><ul><ul><ul><li>Many employers match contributions to your retirement account. </li></ul></ul></ul>
  18. 18. Step 5: Implement Your Strategy <ul><li>Implementing your financial plan includes: </li></ul><ul><ul><li>Who to invest with (“how to buy”) </li></ul></ul><ul><ul><li>When to buy </li></ul></ul>
  19. 19. Implement Your Strategy <ul><li>Your financial plan can be implemented with: </li></ul><ul><ul><li>A financial planner </li></ul></ul><ul><ul><li>A broker </li></ul></ul><ul><ul><li>Professional money manager </li></ul></ul><ul><ul><li>Mutual funds </li></ul></ul>
  20. 20. Implement Your Strategy <ul><li>When to buy: on a ___________________ ________________. </li></ul><ul><li>One of the biggest mistakes investors make is to “time the market.” This usually results in buying high and selling low. </li></ul><ul><li>Saving and investing through payroll deduction avoids trying to second guess which way the market is going. </li></ul>
  21. 21. Step 6: Monitor Performance <ul><li>It is important to measure investment returns and to compare your returns with _____________________. </li></ul><ul><li>Investment benchmark: an index of returns. </li></ul><ul><li>Your benchmarks should be based on your __________________ allocation. </li></ul>
  22. 22. Mutual Funds <ul><li>The most popular method of investing in stocks and bonds is through mutual funds. </li></ul><ul><li>When you invest in a mutual fund, you become part owner in the portfolio of securities held by the fund. </li></ul>
  23. 23. Mutual Funds <ul><li>Mutual funds offer: </li></ul><ul><ul><li>Professional management </li></ul></ul><ul><ul><li>Record keeping </li></ul></ul><ul><ul><li>_______________________ </li></ul></ul><ul><ul><li>Low _____________________ costs (in some cases) </li></ul></ul>
  24. 24. Types of Mutual Funds <ul><li>Mutual funds can be classified by the types of assets they hold: </li></ul><ul><ul><li>Stock funds </li></ul></ul><ul><ul><li>Bond funds </li></ul></ul><ul><ul><li>Money market funds </li></ul></ul><ul><ul><li>Index </li></ul></ul><ul><ul><li>Sector </li></ul></ul>
  25. 25. Types of Mutual Funds <ul><li>Mutual funds can also be classified as: </li></ul><ul><ul><li>Domestic </li></ul></ul><ul><ul><li>Foreign </li></ul></ul><ul><ul><li>World </li></ul></ul>
  26. 26. Mutual Funds <ul><li>Cost of investing in mutual funds include: </li></ul><ul><ul><li>Front-end and back-end loads </li></ul></ul><ul><ul><li>Annual management fees </li></ul></ul><ul><ul><li>12 b-1 fees </li></ul></ul>
  27. 27. Mutual Fund Information <ul><li>Sources of info on mutual funds include: </li></ul><ul><ul><li>Morningstar </li></ul></ul><ul><ul><li>Value Line </li></ul></ul><ul><ul><li>Investment Company Institute </li></ul></ul><ul><ul><li>Popular press (Wall Street Journal, Barron’s, Business Week) </li></ul></ul><ul><ul><li>Prospectus </li></ul></ul><ul><ul><li>Fund’s website </li></ul></ul>
  28. 28. How to Pick a Mutual fund <ul><li>In comparing mutual funds, look for: </li></ul><ul><ul><li>No _________________ </li></ul></ul><ul><ul><li>Low _________________ </li></ul></ul><ul><ul><li>Matches your objectives and ____________ tolerance </li></ul></ul><ul><ul><li>Tax efficiency </li></ul></ul><ul><ul><li>Good recent performance (3-5 years) </li></ul></ul><ul><ul><li>No recent change in management </li></ul></ul>
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