How do you determine your investment risk? Investing for Your Future Section 1 Chapter 11 Financial Investment -Money set aside to increase wealth over time and accumulate funds for long-term financial goals such as retirement.

Stages of Investing  Stage 1. Put-and-take account  Checking/savings account for expected and unexpected expenses  Stage 2. Beginning investing  Invest excess savings in conservative low risk investments.  Stage 3. Systematic investing  Investing on a regular and planned basis  Diversification-spreading the risk among many types of investments.  Stage 4. Strategic investing  Careful management of investment alternatives to maximize growth of your portfolio(collection of investments)  Stage 5. Speculative investing  Additional money to be used in high risk investments.

Reasons for Investing Advantages:  Investing helps beat inflation.  Inflation-A rise in the general level of prices.  Investing increases wealth.  In general-Investments earn higher profits than savings increasing your assets which increase your net worth.  Investing is fun and challenging.  By choosing investments, buying and selling at specific times can create more financial security.  Diversification - to spread the risk of investment  Minimizes loss of potential risky investments.

Risks of Investing  Risk is the chance that an investment's return will be different than expected.  Return is the gain or loss of an investment in a particular period  Short-term investments are generally less risky than long-term investments. Interest –Rate Risk 2% APY on CD 3% increase in inflation Market Risk Dow Jones declines to 6500 points from Company or Industry Risk Big Three Auto Manufacturers request Bail-out Money Non-Market Risk 9-11, Katrina

Costs of Investment  Capital loss-the decrease in the value of an investment below the price initially paid for it.  Fees financial institutions may charge:  Commission-fees to a third party for assisting in a business transaction, such as buying or selling an asset.  Expense ratio- rate take from entire fund to cover overhead expenses  Transaction fee-flat fee that you pay each time you buy or sell stock  Front load-is a percentage that is charged for each stock you buy  Back load-is a percentage that is charged for each stock that you sell.

Criteria for Choosing an Investment  Degree of safety (risk of loss)  Degree of liquidity(ability to get your money quickly)  Expected dividends or interest  Expected growth in value that exceeds the inflation rate (Rate of return-inflation rate=Growth in value)  Reasonable purchase price and fees  Tax benefits (saving or postponing tax liability)

Wise Investment Practices  Define your financial goals.  Go slowly.  Follow through.  Keep good records.  Seek good investment advice.  Keep investment knowledge current.  Know your limits.

Sources of Financial Information  Newspapers(Wall Street Journal)  Investor services and newsletters (Moody’s Investors Service and Standard and Poor’s Reports)  Financial magazines (Money and Kiplinger)  Stockbrokers-an employee of a brokerage firm, who buys and sells securities for investors.  Financial advisers-trained professional planners who give overall investment advice based on your goals, age, lifestyle, and other factors.  Annual reports – a summary of a corporation’s financial results for the year and prospects for the future.  Online investor education-educational information for new investors(Motley Fool, MSN Money, Yahoo Money)