Investing for the Future 11
Investment Essentials <ul><li>Personal Investing </li></ul><ul><ul><li>The use of your savings to earn a financial return....
<ul><li>Initial Savings / Beginning Investments  should be conservative and low risk. </li></ul><ul><li>These investments ...
Types of Investments <ul><li>Systematic investment : a type of permanent investment centering on retirement planning. </li...
Reasons for Investing <ul><li>Investing is an important part of personal financial management. </li></ul><ul><li>An invest...
Other Reasons to Invest <ul><li>To supplement earned income </li></ul><ul><li>To make a profit </li></ul><ul><li>To minimi...
Investing Helps Beat Inflation <ul><li>Inflation  is a rise in the general level of prices. </li></ul><ul><li>Inflation re...
<ul><li>At retirement, people need to have more income than social security or retirement benefits will provide. </li></ul...
Rule of 72 <ul><li>The  Rule of 72  is a technique for estimating the number of years required to double your money at a g...
Investing Increases Wealth <ul><li>Financial success grows from the assets that you build up over time. </li></ul><ul><li>...
Investing Is Fun and Challenging <ul><li>Investors make choices and hope to pick winners.  </li></ul><ul><li>Once you gain...
Risk and Return <ul><li>Risk in an investment means a measure of uncertainty about the outcome. </li></ul><ul><li>Safety i...
Diversification <ul><li>Diversification  is the spreading of risk among many types of investments. </li></ul><ul><li>Diver...
Types of Risk <ul><li>Short-Term and Long-Term Risk </li></ul><ul><ul><li>Short-term are less risky than long-term </li></...
Types of Risk <ul><li>Political Risk </li></ul><ul><ul><li>Government actions that affect business conditions. </li></ul><...
Investment Strategies <ul><li>Many individuals never start an investment program because they think they don’t have enough...
Criteria for Choosing an Investment <ul><li>Degree of safety (minimal risk of loss) </li></ul><ul><li>Degree of liquidity ...
Wise Investment Practices <ul><li>Define your financial goals. </li></ul><ul><li>Go slowly. </li></ul><ul><li>Follow throu...
Sources of Financial Information <ul><li>Newspapers </li></ul><ul><li>Investor services and newsletters </li></ul><ul><li>...
Annual Reports <ul><li>An  annual report  is a summary of a corporation’s financial results for the year and its prospects...
Stocks <ul><li>Stock  represents ownership in a corporation. </li></ul><ul><li>A  share  of stock is a unit of ownership. ...
Bonds <ul><li>Bonds  are debt obligations of corporations  (corporate bonds)  or governments  (municipal bonds). </li></ul...
<ul><li>U.S. Government Savings Bonds </li></ul><ul><ul><li>When you buy a savings bond, you are lending money to the U. S...
<ul><li>Treasury Securities </li></ul><ul><ul><li>U.S. Treasury bills (called T-bills) are available in denominations of $...
<ul><li>Annuities </li></ul><ul><ul><li>An  annuity  is a contract that provides the investor with a series of regular pay...
<ul><li>IRA </li></ul><ul><ul><li>Individual Retirement Account </li></ul></ul><ul><ul><li>A savings plan where you set as...
Collectibles <ul><li>Collectibles include: </li></ul><ul><ul><li>Coins  </li></ul></ul><ul><ul><li>Art  </li></ul></ul><ul...
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  • MYPF 12/16/10 Chapter 11
  • Chapter 11 Notes

    1. 1. Investing for the Future 11
    2. 2. Investment Essentials <ul><li>Personal Investing </li></ul><ul><ul><li>The use of your savings to earn a financial return. </li></ul></ul><ul><ul><li>The overall objective is to earn money with money. </li></ul></ul>SLIDE Chapter 11
    3. 3. <ul><li>Initial Savings / Beginning Investments should be conservative and low risk. </li></ul><ul><li>These investments can provide certain tax advantages. </li></ul><ul><ul><li>Tax deductible </li></ul></ul><ul><ul><li>Tax deferred </li></ul></ul><ul><ul><li>Nontaxable </li></ul></ul><ul><li>Beginning investments are permanent and should be maintained for the long term. </li></ul>SLIDE Chapter 11
    4. 4. Types of Investments <ul><li>Systematic investment : a type of permanent investment centering on retirement planning. </li></ul><ul><li>Speculative investment : a type of investment that is made in the hope of earning a relatively large profit in a short time. </li></ul>SLIDE Chapter 11
    5. 5. Reasons for Investing <ul><li>Investing is an important part of personal financial management. </li></ul><ul><li>An investment program should begin with an emergency fund. </li></ul><ul><li>An emergency fund is a certain amount of money that can be obtained quickly in case of immediate need. </li></ul>SLIDE Chapter 11
    6. 6. Other Reasons to Invest <ul><li>To supplement earned income </li></ul><ul><li>To make a profit </li></ul><ul><li>To minimize tax burdens now and in the future </li></ul><ul><li>To provide income for retirement </li></ul><ul><li>To stay ahead of inflation </li></ul>SLIDE Chapter 11
    7. 7. Investing Helps Beat Inflation <ul><li>Inflation is a rise in the general level of prices. </li></ul><ul><li>Inflation reduces purchasing power over time. </li></ul><ul><ul><li>As prices rise, it takes more money to buy the same goods and services. </li></ul></ul><ul><li>Investors seek investments that will grow faster than the inflation rate. </li></ul>SLIDE Chapter 11
    8. 8. <ul><li>At retirement, people need to have more income than social security or retirement benefits will provide. </li></ul><ul><li>The chief difference among investments is how fast growth occurs. </li></ul><ul><li>The greatest opportunity for growth is an investment in common stock. </li></ul><ul><li>One of the safest investments, such as a certificate of deposit, provides a predictable but limited growth potential. </li></ul>SLIDE Chapter 11
    9. 9. Rule of 72 <ul><li>The Rule of 72 is a technique for estimating the number of years required to double your money at a given rate of return. </li></ul><ul><ul><li>Divide the percentage rate of return into 72 to estimate how long it will take to double your money. </li></ul></ul><ul><ul><li>For example, if an investment is yielding an average of 6 percent, it will take 12 years to double your money (72 ÷ 6). </li></ul></ul>SLIDE Chapter 11
    10. 10. Investing Increases Wealth <ul><li>Financial success grows from the assets that you build up over time. </li></ul><ul><li>Investing helps you accumulate wealth faster than if you simply saved your excess cash in a savings account. </li></ul><ul><li>When you invest in stocks and bonds, you are participating in helping businesses make and sell new products and services. </li></ul><ul><li>You will be rewarded with dividends and interest. </li></ul>SLIDE Chapter 11
    11. 11. Investing Is Fun and Challenging <ul><li>Investors make choices and hope to pick winners. </li></ul><ul><li>Once you gain experience, you can have fun choosing investments, buying and selling when the time is right, and using your knowledge to plan for your financial security. </li></ul>SLIDE Chapter 11
    12. 12. Risk and Return <ul><li>Risk in an investment means a measure of uncertainty about the outcome. </li></ul><ul><li>Safety in an investment means minimal risk of loss. </li></ul><ul><li>One way to minimize risk is through diversification. </li></ul>SLIDE Chapter 11
    13. 13. Diversification <ul><li>Diversification is the spreading of risk among many types of investments. </li></ul><ul><li>Diversification reduces overall risk because not all of your choices will perform poorly at the same time. </li></ul><ul><li>If one choice does not do well, the others will likely make up some or all of the loss. </li></ul>SLIDE Chapter 11
    14. 14. Types of Risk <ul><li>Short-Term and Long-Term Risk </li></ul><ul><ul><li>Short-term are less risky than long-term </li></ul></ul><ul><li>Inflation and Interest Rate Risk </li></ul><ul><ul><li>Inflation makes your fixed-rate investments worth less because they are “locked in” at lower rates of interest </li></ul></ul>SLIDE Chapter 11
    15. 15. Types of Risk <ul><li>Political Risk </li></ul><ul><ul><li>Government actions that affect business conditions. </li></ul></ul><ul><ul><li>Examples: increased taxes; environmental regulations </li></ul></ul><ul><li>Market Risk </li></ul><ul><ul><li>Caused by business declines, sudden national or world events or interest rate fluctuations </li></ul></ul>SLIDE Chapter 11
    16. 16. Investment Strategies <ul><li>Many individuals never start an investment program because they think they don’t have enough money. </li></ul><ul><li>But even small sums of money grow over time. </li></ul><ul><li>To achieve financial security, start investing as soon as you can and continue to invest over your lifetime. </li></ul>SLIDE Chapter 11
    17. 17. Criteria for Choosing an Investment <ul><li>Degree of safety (minimal risk of loss) </li></ul><ul><li>Degree of liquidity </li></ul><ul><li>High return (investment income) </li></ul><ul><li>Expected growth in value that exceeds the inflation rate </li></ul><ul><li>Reasonable purchase price and fees </li></ul><ul><li>Tax benefits </li></ul>SLIDE Chapter 11
    18. 18. Wise Investment Practices <ul><li>Define your financial goals. </li></ul><ul><li>Go slowly. </li></ul><ul><li>Follow through. </li></ul><ul><li>Keep good records. </li></ul><ul><li>Seek good investment advice. </li></ul><ul><li>Keep investment knowledge current. </li></ul>SLIDE Chapter 11
    19. 19. Sources of Financial Information <ul><li>Newspapers </li></ul><ul><li>Investor services and newsletters </li></ul><ul><li>Financial magazines </li></ul><ul><li>Brokers </li></ul><ul><li>Financial advisers </li></ul><ul><li>Annual reports </li></ul><ul><li>Online investor education </li></ul>SLIDE Chapter 11
    20. 20. Annual Reports <ul><li>An annual report is a summary of a corporation’s financial results for the year and its prospects for the future. </li></ul><ul><li>The Securities and Exchange Commission (SEC) requires all public corporations to prepare this report each year and send it to their stockholders. </li></ul><ul><li>Investors can use the information contained in the report to evaluate the corporation as an investment prospect. </li></ul><ul><li>Where to get annual reports </li></ul><ul><ul><li>Online at the SEC web site </li></ul></ul><ul><ul><li>Company web sites </li></ul></ul><ul><ul><li>Libraries </li></ul></ul>SLIDE Chapter 11
    21. 21. Stocks <ul><li>Stock represents ownership in a corporation. </li></ul><ul><li>A share of stock is a unit of ownership. </li></ul><ul><li>The owner of stock is called a stockholder. </li></ul><ul><ul><li>Receive a stock certificate which is evidence of ownership </li></ul></ul>SLIDE Chapter 11
    22. 22. Bonds <ul><li>Bonds are debt obligations of corporations (corporate bonds) or governments (municipal bonds). </li></ul><ul><li>Owners are paid a fixed amount of money, called interest, at a fixed interval. </li></ul><ul><li>The principal , or amount borrowed, must be repaid at maturity </li></ul><ul><li>The maturity date of a bond is the date on which the borrowed money must be repaid. </li></ul>SLIDE Chapter 11
    23. 23. <ul><li>U.S. Government Savings Bonds </li></ul><ul><ul><li>When you buy a savings bond, you are lending money to the U. S. government. </li></ul></ul><ul><ul><li>A discount bond is purchased for less than the maturity value. </li></ul></ul><ul><ul><ul><li>A $50 bond is purchased for $25. </li></ul></ul></ul><ul><ul><ul><li>At maturity, you receive the full value of the bond. </li></ul></ul></ul><ul><ul><ul><li>The difference between the purchase price and maturity value is the amount of interest earned. </li></ul></ul></ul>SLIDE Chapter 11
    24. 24. <ul><li>Treasury Securities </li></ul><ul><ul><li>U.S. Treasury bills (called T-bills) are available in denominations of $10,000, then in increments of $5,000. </li></ul></ul><ul><ul><li>A Treasury bill is for one year or less </li></ul></ul><ul><li>Mutual funds </li></ul><ul><ul><li>A mutual fund is the pooling of money from many investors to buy a large selection of securities. </li></ul></ul><ul><li>Real Estate </li></ul><ul><ul><li>Investment in houses and/or land </li></ul></ul><ul><ul><li>Good protection against inflation </li></ul></ul>SLIDE Chapter 11
    25. 25. <ul><li>Annuities </li></ul><ul><ul><li>An annuity is a contract that provides the investor with a series of regular payments, usually after retirement. </li></ul></ul><ul><ul><li>You receive income monthly, with payments to continue as long as you live. </li></ul></ul><ul><ul><li>You usually purchase an annuity contract from a life insurance company. </li></ul></ul><ul><ul><li>Taxes are deferred until a person receives payments </li></ul></ul><ul><ul><li>Payments are used to supplement income </li></ul></ul><ul><ul><li>Opposite of life insurance—you collect while you are alive. </li></ul></ul>SLIDE Chapter 11
    26. 26. <ul><li>IRA </li></ul><ul><ul><li>Individual Retirement Account </li></ul></ul><ul><ul><li>A savings plan where you set aside a certain amount of money each year for retirement. </li></ul></ul><ul><ul><li>The advantage is that the money invested in an IRA is deductible from gross income on your federal income tax return. </li></ul></ul><ul><ul><li>You will pay taxes when you start withdrawing funds at age 59 ½ or older. </li></ul></ul><ul><ul><ul><li>You will then be in a lower tax bracket. </li></ul></ul></ul><ul><li>Keogh </li></ul><ul><ul><li>An IRA for the self-employed. </li></ul></ul>SLIDE Chapter 11
    27. 27. Collectibles <ul><li>Collectibles include: </li></ul><ul><ul><li>Coins </li></ul></ul><ul><ul><li>Art </li></ul></ul><ul><ul><li>Memorabilia </li></ul></ul><ul><ul><li>Ceramics </li></ul></ul><ul><li>The market for collectibles fluctuates. </li></ul><ul><ul><li>If you collect an item that goes up in value, you can reap large rewards by selling. </li></ul></ul><ul><ul><li>Collectibles gain value when interest is high and lose value when interest is low. </li></ul></ul>SLIDE Chapter 11
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