Investment commitment of funds to achievement of long term goals key Chapter 11 Fundamentals of Investing to long term financial success Purpose of Investment Importance of Investing Preparations of Investing Stable life Net worth Regular savings No credit card debt Employer sponsored retirement plan Four steps in investing Setting Goals Developing Investment Attitude Questions to help in setting goals Setting Goals Developing an Investment Attitude First thing what are you saving for then second Assessing Risk and Return Selecting Instruments and Allocating Assets Managing Investments Assessing Risk and Return Investment horizon Expected returns anticipated future returns Current income money received from an investment Capital gains income that results from an increase in the value of Capital losses lost income resulting from a decrease in an an investment investment s value Return total income from an investment Total Return annual return on an investment including appreciation and dividends or interest Yield return on a capital investment typically bonds Current Yield annual interest on a bond divided by market price Actual rate of return Investment Risk uncertainty over an investments actual return Selecting Investments and Allocating Assets Asset allocation target mix of different types of investments stock splits are encouraged good for the investor Diversity putting money into different types of investments Portfolio combined holdings to increase diversification and to reduce risk Speculation Growth Safety and income Security o Managing Investments How much should be invested How long should investments be held Who should be involved in investment decisions and processing buy and holds Types of investments part of a company Savings Stocks ownership in a corporation represented by shares means you own Bonds investments involving lending money to an organization means you ve leant to the stock market government Dividends distributions of money from a corp or government to investors older stocks are more likely to dividend Mutual funds groups of stocks bonds or other securities managed by an investment company Money Markets instruments means that you lend money to an organization such as a bank or gov Real estate Social Security Company pensions Large holdings Your own business Anticipated inheritance Precious metals and collectibles Annuities Transaction costs involved in investing Investing strategies and terms Risk and Investment Tradeoffs between risk and return Transaction Costs charges for buying and selling securities when you buy a stock sometimes you have to buy a bond as well Realized return actual return on investments Tax Shelters Dollar Cost Averaging systematic investing of equal sums of money at regular intervals regardless of price fluctuations in an investment Dividend Investment Plans DRIPs automatic reinvestment of shareholder dividends to buy additional stock if your stock is doing well Direct Investment Plans investors buy stock directly from a corp Employee Stock Ownership plans another form of drip programs in which employees can buy stock in the company they work for a reduced price or with matching funds from an employer Investment Formulas and Experts Rebalancing adjusting asset allocation and Life Cycle Investing Starting to Invest Deciding to Sell Time to Invest Other aspects of investing Global Investing Women and Investing Investment Clubs groups that form partnerships to invest in stocks and to learn about investing Advice for beginners Know your risk level Investigate Hope Stay the course Invest Diversity Accumulate and sell Online brokerage Chapter 12 Stocks most famous stock exchange is new york stock exchange Common stock shares of units of ownership in a public corporation most typical kind of stock most of them are traded on the secondary market Common Stock may or may not pay dividends Issuers of Common Stock The Buckle Inc NYSE BKE The value of Common Stock Dollar Appreciation of stock value Stock splits when a corp declares that stocks will split stock is divided into a larger number of shares mergers when 2 or more companies merge this is usually a good thing The value of Common Stock Dividends Cash Company products property or discounts Stock dividends Common stock versus preferred stock Preferred stock Preferred stock shares that pay dividends and have precedence over common stock pays dividends costs a little bit more but more secure Par value face value of a security Callable preferred stock clause that allows for the corporation to recall the stock Four main types Cumulative Participating preferred stock Adjustable rate preferred Convertible preferred exchangeable for a given number of common shares Stock reports in the newspaper financial section Stock Advisory Services Stock Classifications stocks are referred to as symbols abbreviations Blue chip stocks stocks of nationally known companies with quality reputations and long records of profit growth and which usually pays dividends Cyclical stocks react quickly to changes in the economy Defensive stocks provide consistent dividends and remain stable regardless of changes in the economy Growth stocks earn profits above average for all firms and are expected to prosper Income stocks pay higher than average dividends Speculative stocks risky usually newer stocks invested in with the anticipation of gain and the realization of possible lows Stock Classification by Industry Classes used by S P Index Stock market indicators Dow Jones Industrial Average DJIA market index of the movement of 30 leading stocks The only stock on both the original and the current list is General electric Standard and Poor s index S P 500 market index of the movement of NASDAQ index market index of fast moving technology and financial Russell 2000 small stock index measure of the stock price performance of 500 stocks services stocks small companies Wilshire 5000 equity index broadest of all market indexes the market value of all U S equities on the main stock exchanges Bull and Bear Markets Bull market market is up Bear Market market is down Four numerical measures Book Value numerical measure of a company derived by deducting liabilities from a corporation assets and dividing the remainder by the number of outstanding shares of common stock Earnings per share numerical measure of the portion of a company s profit allocated to each outstanding share of common stock Price earnings or PE ratio numerical
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