COA 4131 1st Edition Lecture 20 Outline of Last Lecture I Life Insurance and Families II Four Basic Types of Life Insurance III Policy Choice IV Other Types of Life Insurance V Clauses Outline of Current Lecture I Finding a Financially Secure Insurer II Investment Defined III Preparations for Investing IV Four Steps in Investing Current Lecture A Finding a Financially Secure Insurer a Annuities i Sold by life insurance companies ii You give company lump sum of money iii Fixed 1 Give them 50 000 and they will give you 200 a month for the rest of your life a You agree to the amount b The longer you live the more money you get c The less money you put in the less they will give you iv Variable 1 Depends on stock market a One month may get more money than another money b Much more of a chance c Depends on how good they are at investing it v People who buy annuities live longer than those who do not 1 They want to beat the system 2 Can out live the lump sum and they will still pay you B Investment Defined a Investment i Purpose of Investment 1 For security 2 Underlying principle to make money back ii Did you know 1 In 1637 a single tulip bulb in the Netherlands was worth more than the best house in Amsterdam a Tulip was more rare b Cost and demand 2 In 1983 AT T stock cost 6 140 to buy in a In 10 years it went up to 74 000 b Wonderful purchase in 1983 3 Boston Market owned by McDonald s was called Boston Chicken originally a Not doing so well in U S b Can loose all of investment c Restaurant stocks are very unpredictable 4 Outback Steakhouse started in Tampa FL a Started by 2 college students C Preparations for Investing a Stable life i Want to have a good job and stable life before you put extra money into investments b Net worth c Regular savings program i Where you are putting money away each month d No credit card debt i Or have it under control e Employer sponsored retirement i Put in retirement before you invest D Four Steps in Investing a Setting goals developing investment attitude i Questions to help in setting goals ii Look at places that are doing well 1 In malls restaurants everywhere iii Look at places that are not doing well 1 For rent signs iv Be money curious and be aware 1 Look in airports 2 Big cities v Find out what other people know 1 Other investors company owners ect vi Set goals asses risks and returns select instruments allocate assets and manage investments 1 How much could you possibly lose 2 How much could you potentially gain 3 Look at how it s flowing 4 All up is a good indicator on a chart 5 Stocks bonds annuities 6 Allocate some money towards these 7 When money goes up so high make decision to buy others sell ect 8 When money doubles the unsaid rule is to buy b Assessing Risk and Return i Investment horizon 1 The younger you start the more you will make 2 Start modestly ii Expected returns 1 Will it go to child s college fund to spouse who doesn t work etc iii Current income 1 Money received from investments 2 Savings account at 2 means current income at 2 3 Doesn t mean money from job in this situation iv Capital gains 1 Difference in money you make 2 Government taxes you on money made unless you keep it in stock v Capital losses 1 The money lost 2 Can reduce taxes 3 Sell in December knowing there will be a loss and write it on taxes to get money back vi Return vii Total Return 1 Appreciating of stock when it went up and dividend 2 Some stocks pay dividends a This is excellent b Older people love these c Can get extra money or reinvestment in stock viii Yield 1 Associated with bonds a Another kind of investment 2 How much will it yield me per year when I sell it
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