COA 4131 1st Edition Lecture 23 Outline of Last Lecture I Four Steps in Investing Outline of Current Lecture I Types of Investments II Creating a diversified portfolio III More Types of Investments Current Lecture A Types of Investments a Savings i Goal is to accumulate funds in a risk free conservative manner based on interest over time ii Savings accounts pay a low rate of interest so they are often not listed as investments but they are b Stocks bonds mutual funds money markets i Stocks 1 Represent ownership in such corporations such as Intel Coca Cola and Apple 2 Represented by shares ii Bonds 1 Investments involving lending money to organizations for a period of time a Can be a corporation or governmental b Issuer of bond pays the bondholder a specified sum of money at specific interval usually an repay the principal amount of the loan at maturity 2 Corporate bonds come from a company 3 Government bonds are written pledges of a government of municipality to repay a specified amount of money plus interest iii Dividends 1 Distributions of money from a corporation or government to investors iv Mutual funds 1 Groups of stocks bonds or other securities managed by an investment company v Money market 1 Money market instruments mean that you lend money to an organization such as a bank or the government a Offers security and liquidity c Real estate i General rule that real estate increases in value ii No guarantees iii Location and timing are important iv Real estate is less liquid than other forms of investments B Creating a diversified portfolio a Mix of investments that matches your needs and goals b Increasing risk of loss i Possibly increasing return through appreciation c Decreasing risk of loss i Possible loss of purchasing through decreasing returns C More Types of Investments a Social Security i Alternatives are being considered to keep it going fully funded or partially funded 1 Partial checks 2 Delay receiving checks to later age 3 Reduce percentage that non working spouses receive based on their working spouse s contribution 4 Still in transition b Company pensions i Can provide a monthly check at retirement ii May not have built in inflation protection Social Security does have this iii Can be a set number of dollars per month without change iv Fixed pension has less buying power v Pension money that does not go for immediate living expenses should be invested 1 Easier said than done c Large holdings i Less common ii Executive and family owners of companies may have a lot of money tied up in stock in that company 1 The family owners of large amounts of WalMart Michael Eisner of Disney Bill Gates of Microsoft d Your own business i Can be risky but still an investment ii Similar to owning a stock
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