1. Investment Fundamentals

2. Objectives
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Summarize reasons why people invest, what is
required before beginning, how returns are earned,
and some ways to obtain funds to invest.
Determine your own investment philosophy.
Recognize the variety of investments available.
Identify the major factors that affect the return on
investment.
Specify some strategies of portfolio management for
long-term investors.
List three guidelines to use when deciding the best
time to sell investments.

3. Establishing Investment Goals
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Financial goals should be specific and
measurable.
Why are you accumulating these funds?
How much do you need?
How will you get it?
How long will it take you to reach your goal?
How much risk are you willing to assume?
Are you willing to sacrifice current consumption
to invest for the future?
Is it realistic to try and save this amount?

4. Steps to Create a Personal Investing Plan
Step 1
My investment goals are:
____________________
____________________
Step 2
By ___________, I will
have obtained $_______.
Step 3
I have $__________
available to invest.
Date _____________
Step 9
Continue evaluating choices.
Step 4
Possible investment alternatives:
1._________________
2._________________
3._________________
4._________________
Step 8
Final decision
1._______________
2._______________
Step 7
Investment decision
1._______________
2._______________
3._______________
Step 6
Projected return on each alternative
1.__________
2.__________
3.__________
4.__________
Step 5
Risk factors for each alternative
1.____________________
2.____________________
3.____________________
4.____________________

5. Investment Fundamentals
ATTENTION!
Difference
in return is a major distinction
between savings and investing.
Successful
investors begin to live off
earnings, without spending wealth itself.

6. Preparations for Investing
WHY PEOPLE INVEST:
 Achieve financial goals
 Increase current income
 Gain wealth and financial security
 Have funds available for retirement

7. Preparations for Investing
PREREQUISITES TO INVESTING:
 Live within means
 Continue savings program
 Establish lines of credit
 Carry adequate insurance
 Establish investment goals

8. Preparations for Investing
INVESTMENT RETURNS:
 Interest
 Dividends
 Rent
 Capital gain/loss
 Rate of return or yield

9. Performing a Financial Checkup
Learn to live within your means
 pay off high interest credit card debt
 Provide adequate insurance protection
 Start an emergency fund
 three to nine months of living expenses
 Have other sources of cash for emergencies
 line of credit
 cash advance
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10. Getting Money to
Start an Investing Program
 Pay yourself first
 Participate in elective savings programs
 Payroll deduction
 electronic transfer
 Make a special effort to save one or two
months a year
 Take advantage of windfalls
 Invest half of
your tax refund

11. Value of Having a
Long-Term Investing Program
 Many people don’t start investing because
they only have a small amount to invest
but....
 Small amounts invested regularly
become large amounts over time

12. Personal Investment Philosophy
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Handling risk
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Ultraconservative strategies
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Conservative
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Moderate
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Aggressive

13. Investment Selection
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Lend or own
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Short-term or long-term
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Choose a vehicle

14. Factors That Affect
Investment Decisions
Safety - minimal risk of loss
 Risk - uncertainty about the outcome
 inflation risk
 interest rate risk
 business failure risk
 market risk
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15. Income From Investments
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Safest
 CDs
 savings bonds
 T-bills
Higher potential income
 municipal bonds
 corporate bonds
 preferred stocks
 mutual funds
 real estate

16. Investment Growth and Liquidity
Growth
 increase in value
 common stock
 growth stocks retain earnings
 bonds, mutual funds and real estate
 Liquidity
 ease and speed to convert an asset to cash
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17. Investment Pyramid
High risk
Commodities
Junk bonds
Options
High Quality
Stocks
Mutual funds
Utility
stocks
CDs
Rental
property
Government
Securities
Money
Market
Corporate
bonds
Savings
Accounts
Cash
Low
risk

18. Major Factors That Affect Rate of Return
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INVESTMENT RISK:
 Pure
 Speculative
 Risk pyramid

19. Major Factors That Affect Rate of Return
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INVESTMENT RISK TYPES:
Inflation
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Financial
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Deflation
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Market volatility
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Interest rate
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Political
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20. Major Factors That Affect Rate of Return
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INVESTMENT RISK:
 Random or unsystematic
 Diversification
 Market or systematic

21. Major Factors That Affect Rate of Return
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Leverage
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Taxes
 Marginal tax rate
 Taxable vs. tax-free income
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Buying and selling costs/commissions
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Inflation

22. Major Factors that Affect Rate of
Return
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CALCULATE REAL RATE OF RETURN:
 Identify before-tax return
 Subtract marginal tax rate
 Obtain net return after taxes
 Subtract estimate of inflation
 Obtain real rate

23. Management Strategies — Long-Term
Investors
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Business-cycle timing
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Dollar-cost averaging
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Portfolio diversification
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Asset allocation

24. Monitor Your Investments
Read your account statements
 Chart the value of your investments
 Maintain accurate and current records
 Calculate the current yield %
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annual income from investment
market value of the investment

25. Sources of Investment Information
Newspapers
 Business Periodicals
 Government Publications
 Corporate Reports
 Statistical Averages
 Investor Services and newsletters
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 Standard and Poor’s stock reports
 Value Line
 Moody’s investment service

26. Investment Philosophies

27. Best Time to Sell
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Take profits
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Cut losses
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“If wouldn’t buy it now, sell it”