COA 4131 1st Edition Lecture 20 Outline of Last LectureI. Life Insurance and FamiliesII. Four Basic Types of Life Insurance III. Policy ChoiceIV. 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 LectureA. Finding a Financially Secure Insurer a. Annuitiesi. Sold by life insurance companiesii. 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 lifea. You agree to the amount b. The longer you live, the more money you getc. The less money you put in, the less they will give you iv. Variable1. Depends on stock marketa. One month may get more money than another moneyb. Much more of a chancec. Depends on how good they are at investing it v. People who buy annuities live longer than those who do not1. They want to beat the system2. Can out live the lump sum and they will still pay you B. Investment Defineda. Investmenti. Purpose of Investment1. For security 2. Underlying principle to make money back ii. Did you know1. 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 ina. In 10 years, it went up to $74,000 b. Wonderful purchase in 19833. Boston Market, owned by McDonald’s, was called Boston Chicken originally a. Not doing so well in U.S. b. Can loose all of investmentc. Restaurant stocks are very unpredictable 4. Outback Steakhouse started in Tampa, FL a. Started by 2 college students C. Preparations for Investinga. Stable lifei. Want to have a good job and stable life before you put extra money into investments b. Net worthc. Regular savings programi. Where you are putting money away each monthd. No credit card debti. Or have it under controle. Employer sponsored retirementi. Put in retirement before you invest D. Four Steps in Investinga. Setting goals/developing investment attitudei. Questions to help in setting goalsii. Look at places that are doing well1. In malls, restaurants, everywhereiii. Look at places that are not doing well1. For rent signsiv. Be money curious and be aware1. Look in airports 2. Big cities v. Find out what other people know1. Other investors, company owners, ect vi. Set goals, asses risks and returns, select instruments/allocate assets, and manage investments1. How much could you possibly lose2. 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, annuities6. Allocate some money towards these 7. When money goes up so high, make decision to buy others, sell, ect8. When money doubles, the unsaid rule is to buy b. Assessing Risk and Returni. Investment horizon1. The younger you start, the more you will make2. Start modestly ii. Expected returns1. Will it go to child’s college fund, to spouse who doesn’t work, etciii. Current income1. 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 gains1. Difference in money you make 2. Government taxes you on money made, unless you keep it in stockv. Capital losses 1. The money lost2. Can reduce taxes 3. Sell in December, knowing there will be a loss, and write it on taxes to get money back vi. Returnvii. Total Return1. Appreciating of stock when it went up and dividend 2. Some stocks pay dividendsa. This is excellentb. Older people love thesec. Can get extra money or reinvestment in stock viii. Yield1. Associated with bonds a. Another kind of investment 2. How much will it yield me per year when I sell
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