Fundamentals of Investing 04 01 2014 Investment Defined Investment commitment of funds to the achievement of long term goals or objectives o Purpose of investment to make money Cycle of investing save spend save again reinvest o Importance of investing rising prices want investments to make more than price of goods want to get more than 2 annually salary is not keeping up with inflation therefore you need to invest downsize long living and retirement self directed retirement funds Preparations for investing when do I start Stable life living in one place for awhile stable job steady income basic insurance student loans paid off or in control Net worth estimation assets liabilities what do you owe Regular savings setting money aside for emergencies on a regular basis 4 6 normal No credit card debt Employer sponsored retirement plan Four steps in investing Setting goals developing investment attitude interested in everything o Questions to help in setting goals What do I really want comfortable live take care of family travel once a year vacation home How much money will it take to get there how much will this house cost How much do I have now How long will it take to get that much money How much risk is involved how much money can I lose What am I giving up to save this money What is realistic Assessing risk and return what is risk and what is return o Investment horizon when do I need the money o Expected returns how much can I expect back o Current income money you receive from an investment dividends twice a year o Capital gains bought a stock at certain price and went up in value bought at 10 went up to 20 gain is between 10 20 o Capital losses how much you lost if stock goes down in value from time you bought it o Return total income from investment o Total return annual return on an investment including appreciation and dividends or interest o Yield how much money will you get if I buy this bond it will YEILD this much return always means bond o Current yield how much will I get back if I turn it in o Investment risk how much of a risk is this Higher risk more chance of good money but also a loss uncertainty over an investments actual return Selecting instruments and allocating assets do I want a bond stock do I want to work for them o Asset allocation how much money do I want to put into it target mix of what you eventually want to own Target mix cash stocks bonds real estate o Diversity spread risk across separate categories always increase o Portfolio the mix of things you want to own some blue chip conventional famous name stocks also want lesser known and smaller companies o Speculation collectables lunch boxes Roy rogers antique rugs metals oil commodity soy beans gems diamonds emeralds rubies options Growth companies that are growing pharmaceuticals apparel food stocks electronics mutual funds raw land Florida undeveloped land real estate bonds Safety and income preferred stocks corporate bonds government bonds utility stocks tend to be secure investments power and energy real estate investment trusts Security always start with security stable cash checks savings account savings bond certificate of deposit retirement plans money markets Managing investments manage actively study o How much should be invested o How long should investments be held Buy and hold this is a long term investment strategy involving keeping investments for many years More activity short term strategies the performance of individual investments often leads to changes o Who should be involved in investment decisions and processing buy and holds Types of Investments Savings building amount of savings investment Stocks bonds mutual fund money markets o Stocks you own a part of the company believe in company like management like products go from there o Bond government and companies lending them money so they can expand twice a year you get payments and a big payment in the end o Mutual fund buy one share and within it their might be 100 companies in the fund own a tiny piece of companies diversifies your type of investments groups of stocks bonds or other securities managed by an investment company o Money markets what is security of it where is my money going what am I getting back Real estate source of income if rent it out hedge against inflation o Property should increase in value quicker than inflation Social security money the government gives you when you retire Company pension state of steadiness optional retirement plan o Amount of money you get each year when you retire Large holdings your family owns a lot of stock in their company or you become the CEO famous bill gates o Wealth is tied to how well business does o Can inherit or marry into a large holding Penny stocks Stocks that are worth 2 00 or less per share Your own business chances of failure are very high o Most likely to fail Restaurants Gift stores Other forms of retail Anticipated inheritance estimate you are going to get so much money in so many years Precious metals and collectibles platinum gold silver Annuities come from life insurance companies give them a chunk of money they give you money in the form of monthly payments Transaction costs involved in investing o Transaction costs can be charged when you buy and when you sell always ask about price Investing Strategies and Terms Risk and investment Tradeoffs between risk and return o Realized return actual return on investments Tax shelters don t pay any taxes until you tax it in protected now Dollar cost averaging consistently investing when market goes up and down putting the same amount into stocks at same time every year o Dividend investment plans when stock goes up rather than giving you the money they reinvest it into the stock so you get more shares really good reinvest until you tell to stop o Direct investment plans go directly to the company so have no brokerage fees o Employee stock ownership plans get stock options Publix stock ownership sell to you for a lower price Investment formulas and experts be careful about this trying to push stocks one day and change to a new stock they want you to invest in the next day Rebalancing and life cycle investing investing differently by age rebalancing is looking back on stocks and realizing what you can do different o Small cap stocks middle stocks and large stocks Starting to invest consistent way of investing or accumulating have a plan o Some offer 50 a month plans Deciding to sell hardest part o One way to get
View Full Document
Unlocking...