1. Investment Planning Chapter 11

2. Investing Placing money in some medium such as stocks, bonds or real estate in the expectation of receiving some future benefit

3. Speculating Future returns are highly uncertain

4. Risk Averse Attitude towards risk – choosing the option with the lowest risk

5. Investment Prerequisites Ample insurance Liquidity – Adequate cash & savings

6. Getting Started What is your risk factor? Use only investment capital Educate yourself on the market Start a paper portfolio and follow it to be sure you understand the investments you are considering Set an objective (a goal)

7. Coming up with the Capital

8. Debt Capital – Capital you lend to corporations or the government. Bonds or Certificates of Deposit

9. Equity Capital Stocks, Commodities, Real Estate

10. Investment Plan How will investment capital will be invested

11. Setting Goals Current Income Major expenditures – Purchase a home – Education – Start a business Retirement Shelter from taxes

12. Ways to Invest Common Stock Bonds Preferred stock and convertibles Mutual Funds Exchange Traded Funds Real Estate

13. Securities Market

14. Markets Primary A new issue to the public that is sold by the corporation through and investment banker. Secondary The transaction is executed by individual investors and does not generate cash for the corporation

15. Bid and Ask Bid The price at which one can sell a security Ask The price at which one can purchase a security

16. Market Conditions Bull Investor Optimism Bear Investor Pessimism

17. Stock Brokers Full Service Broker – Offers a full line of brokerage service Discount Broker – executes trades at a discounted commission Online Broker – executes trades electronically through a commercial service or the internet

18. Security Lots Odd Fewer than 100 shares of stock – Higher fees are charged when purchased or sold Round 100 shares of stock or multiples thereof are purchased or sold

19. Investor Protection Securities Investor Protection Corporation (SIPC) – Created by congress that insures customer accounts against the financial failure of a brokerage firm. Arbitration – A procedure to settle disputes between a brokerage firm and its clients

20. Market Order Purchase at the best price at the time the order is placed.

21. Limit Order An order to buy when the price is at a specified lower price or to sell when a price reaches a specified higher price

22. Stop-Loss (stop order) An order to sell a stock if it drops below a certain level. (protecting capital)

23. Trades Margin Borrowing funds to purchase a security. Short The process of selling borrowed securities that can be replaced at a later date. Hopefully at a lower price

24. Becoming an Informed Investor Information you should follow Economic developments and current events – Helps you evaluate the investment environment Alternative investment vehicles – To stay current with market developments Current interest rates and price quotations – Monitor investments and recognize opportunities Personal investment strategies – To hone investment skills and stay alert for new techniques as they develop

25. Market Data Dow Jones Industrial Average – Most widely followed measure of stock market performance (consists of 30 blue chip stocks) Standard and Poor’s Indexes (S&P) - Similar to Dow but employs different computational methods and consist of far more stocks NYSE Index – index of the performance of all stocks listed on the New York Stock Exchange NASDAQ – track the 100 largest (nonfinancial) firms traded on NASDAQ

26. Managing Your Investment Holdings Portfolio – A collection of Securities to meet investment goals Diversification Choosing securities with dissimilar risk – return characteristics

27. Asset Allocation Dividing a portfolio amount different classes of securities to protect the portfolio against negative market developments

28. Investment Pyramid