chapter 1: investment fundamentals
DESCRIPTION
Chapter 1: Investment Fundamentals. 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. - PowerPoint PPT PresentationTRANSCRIPT
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Chapter 1: Investment Fundamentals
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Objectives
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.
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Establishing Investment Goals 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?
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Investment Fundamentals
Difference in return is a major distinction between savings and investing.
Successful investors begin to live off earnings, without spending wealth itself.
ATTENTION!
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Preparations for Investing
Achieve financial goals
Increase current income
Gain wealth and financial security
Have funds available for retirement
WHY PEOPLE INVEST:
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Preparations for Investing
Live within means
Continue savings program
Establish lines of credit
Carry adequate insurance
Establish investment goals
PREREQUISITES TO INVESTING:
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Interest
Dividends
Rent
Capital gain/loss
Rate of return or yield
Preparations for Investing
INVESTMENT RETURNS:
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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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Income From Investments Safest
CDs savings bonds T-bills
Higher potential income municipal bonds corporate bonds preferred stocks mutual funds real estate
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INVESTMENT PROESS
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INVESTMENT POLICY
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ANALYSIS
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VALUATION
VALUATION HELPS THE INVESTOR TO DETERMINE THE RETURN AND RISK EXPECTED FROM AN INVESTMENT IN THE COMMON STOCK.
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CONSRUCTION OF PORTFOLIO
A PORTFOLIO IS A COMBINATION OF SECURITIES. IT IS CONSTUCTED IN SUCH A MANNER TO MEET THE INVESTOR’S GOALS AND OBJETIVES.
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IT INCLUDES THE FOLLOWING
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EVALUATION
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SPECULATION
IT MEANS TAKING UP THE BUSINESS RISK IN THE HOPE OF GETTING SHORT TERM GAIN.A SPECULATOR IS MORE INTERESTED IN THE MARKET ACTIONS AND ITS PRICE MOVEMENT.
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DIFFERENCE BETWEEN SPECULATOR AND INVESTOR
BASIS OF DIFFERENCE
INVESTOR SPECULATOR
TIME HORIZON PLANS FOR LONGER TIME(1 YR. TO FEW YEARS)
PLANS FOR SHORT TIME (FEW DAYS TO MONTHS)
RISK ASSUMES MODERATE RISK
WILLING TO UNDERTAKE HIGH RISK
RETURN MODERATE RETURNS
HIGH RETURNS
FUNDS OWN FUNDS USES BORROWED FUNDS
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GAMBLING
A GAMBLE IS USUALLY A VERY SHORT TERM INVESTMENT IN A GAME OR CHANCE.TIME IS SHORTER THAN SPECULATION AND INVESTMENT.PEOPLE GAMBLE AS A WAY TO ENTERTAIN THEMSELVES, EARNING INCOMES WOULD BE SECONDARY FACTOR.
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Investment Alternatives
SECURITIES:A.T. SECURITIES REGULATION ACT 1956,”SECURITIES INCLUDE SHARES,STOCKS,BONDS,DEB OR OTHER MARKETABLE SECURITIES.
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Investment Alternatives
What is a bond? a loan to a corporation, the
federal government, or a municipality
The interest is paid twice a year, and the principal isrepaid at maturity (1-30 years)
You can keep the bond until maturity or sell it to another investor
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Investment Alternatives
What is a mutual fund? investors’ money is pooled and invested by a
professional fund manager you buy shares in the fund provides diversification to reduce risk funds range from conservative
to extremely speculative match your needs with
a fund’s objective
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Sources of Investment Information
Newspapers Business Periodicals Government Publications Corporate Reports Statistical Averages Investor Services and newsletters
Standard and Poor’s stock reports Value Line Moody’s investment service