1. 1-1 Financial Investing Presentation to USF Graduate & Professional Student Council 05/21/10 Delroy M Hunter

2. 1-2 The Investment Process What is INVESTING? Is it different from SAVING?  Saving requires the consumption of only a part of your income  Investing requires a decision to allocate the savings to one or more asset classes, typically with a given objective(s) in mind

3. 1-3 The Investment Process What are the implications of “investing”? 1. Requires conscious, active (not passive) decisions 2. A crucial decision is the allocation across asset classes 3. Investing is goal oriented

4. 1-4 Essential Nature of Investing 1. Reduce current consumption (save) 2. Invest using a two-step, “top-down” process -Asset allocation -Security selection 3. Enjoy higher (real) consumption at end of investment horizon

5. 1-5 Doing the “Two Steps” What is Asset Allocation? The process of deciding the relative proportions of the investment budget that is invested in various asset classes The “top” of the “top-down” approach to investing Different from security selection, which is the identification of individual securities or even sub-classes of assets, once the asset allocation decision has been made Studies and life experiences show that asset allocation is the dominant determinant of an investor’s terminal wealth

6. 1-6 ALLOCATION! What Allocation? Essentials of Asset Allocation Investor-specific – though investors can be broadly grouped and offered a similar allocation (e.g., Lifestyle Funds) Is influenced by age, risk tolerance, investment objective, investment horizon Not a science, although there are some “rules”:  e.g., % equity allocation = (100 – AGE)% Should be the cornerstone of local and international DIVERSIFICATION

7. 1-7 Asset Classes Main asset classes Equities (stocks) – issued by private sector firms Bonds (medium to long-term fixed-income securities) – issued by private and public sectors Real estate (through investment companies or owner- managed) Cash equivalents (short-term, fixed income securities) – issued by private and public sectors Commodities (typically through investment companies)

8. 1-8 Asset Classes There is a risk-return trade-off to investing in risky securities -What is return? -What is risk? -Where is the trade-off? Higher risk securities are priced to offer higher returns

9. 1-9 Investing in Equities  Using investment companies for a fee Equity mutual funds -Morningstar ( http://screen.morningstar.com/FundSelector.html?fsection=ToolScreener ) http://screen.morningstar.com/FundSelector.html?fsection=ToolScreener -Yahoo (http://www.finance.yahoo.com/funds)http://www.finance.yahoo.com/funds -Investment Co. Institute (http://www.ici.org/stats/index.html)http://www.ici.org/stats/index.html Exchange traded funds (http://screen.morningstar.com/ETFScreener/Selector.html)http://screen.morningstar.com/ETFScreener/Selector.html) SPDRS (Standard & Poors Depositary Receipts) VIPERS (Vanguard Index Participation Equity Receipts) DIAMONDS (DJIA index)

10. 1-10 Investing in Equities  Using investment companies for a fee Closed end funds (http://www.cefconnect.com/Screener/FundScreener.aspx)http://www.cefconnect.com/Screener/FundScreener.aspx  Selecting individual stocks (http://finance.yahoo.com/) Beware of following the hype Choose stocks that are not highly correlated Limit the proportion of your portfolio invested in individual stocks

11. 1-11 Investing in Fixed Income  Using investment companies for a fee Bond mutual funds -Morningstar ( http://screen.morningstar.com/FundSelector.html?fsection=ToolScreener ) http://screen.morningstar.com/FundSelector.html?fsection=ToolScreener  Selecting individual bonds –  U.S. government bonds (http://www.treasurydirect.gov/indiv/myaccount/myaccount_trea surydirect.htm)http://www.treasurydirect.gov/indiv/myaccount/myaccount_trea surydirect.htm  Corporate bonds (local and foreign) and foreign sovereigns – see a broker

12. 1-12 Investing in Other Asset Classes  Using investment companies for a fee Real Estate mutual funds (REITs) -(http://finance.yahoo.com/)) Money Market Funds - through mutual fund families Commodities - through sector-focused ETFs