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 LectureA. 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 marketsi. Stocks 1. Represent ownership in such corporations, such as Intel, Coca-Cola, and Apple2. Represented by shares ii. Bonds 1. Investments involving lending money to organizations for a period of timea. Can be a corporation or governmentalb. 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 company3. 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 investorsiv. Mutual funds1. Groups of stocks, bonds, or other securities managed by an investment companyv. Money market1. Money market instruments mean that you lend money to an organization such as a bank or the governmenta. 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 portfolioa. Mix of investments that matches your needs and goalsb. Increasing risk of lossi. Possibly increasing return through appreciation c. Decreasing risk of lossi. Possible loss of purchasing through decreasing returnsC. More Types of Investmentsa. Social Securityi. 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 transitionb. Company pensionsi. 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 instock in that company1. The family owners of large amounts of WalMart; Michael Eisner of Disney; Bill Gates of Microsoftd. Your own businessi. Can be risky, but still an investment ii. Similar to owning a
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