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LAP: QS-041 Investment Selection Factors
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Objectives Describe factors in selecting investments. Discuss the effect of personal factors in selecting investments.
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Describe factors in selecting investments. Objective
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Researching Investment Choices Very important! Research the investment itself. Research yourself.
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Important Business Factors to Consider Current market value of company’s stock Company’s past performance in stock market Product mix Competition Management What’s happening in industry sector Current market value of company’s stock Company’s past performance in stock market Product mix Competition Management What’s happening in industry sector
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Discuss the effect of personal factors in selecting investments. Objective
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Personal Factors to Consider Risk tolerance Greater risk = greater potential gains Greater risk = greater potential losses Risk tolerance—how much risk you’re willing to accept in return for potentially high gains Greater risk = greater potential gains Greater risk = greater potential losses Risk tolerance—how much risk you’re willing to accept in return for potentially high gains
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Personal Factors to Consider Risk Tolerance “ Aggressive ” investors—high risk tolerance “ Moderate ” investors—medium risk tolerance “ Conservative ” investors—low risk tolerance “ Aggressive ” investors—high risk tolerance “ Moderate ” investors—medium risk tolerance “ Conservative ” investors—low risk tolerance
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Personal Factors to Consider Age and life phase Getting started early— the magic of compounding Your current amount of income Getting started early— the magic of compounding Your current amount of income Marriage and family
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Short term —l ess than 5 years Intermediate term — 5 to 15 years Long term — 15 years or longer Short term —l ess than 5 years Intermediate term — 5 to 15 years Long term — 15 years or longer Time horizon Personal Factors to Consider
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Need for Liquidity Money you may need soon must be liquid! Converting investment dollars back into cash
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Personal Factors to Consider Need for Liquidity Liquid Not liquid Savings accounts Money market accounts Stocks CDs Bonds Retirement accounts
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Personal Factors to Consider Need to avoid fees “ No load ” mutual funds DSP s—Direct Stock Purchase DRIP s—Dividend Reinvestment Plan
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Personal Factors to Consider Never too early to think about retirement Retirement = financial independence Need to minimize taxes TAXES Tax-minimizing retirement plans
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Personal Factors to Consider Need to minimize taxes TAXES Tax-deferred retirement plans 401(k) 403(b) 457 IRA (Individual Retirement Account) Non-tax-deferred retirement plans Roth IRA
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“ Investor Types ” Quick Case Audacious = Income/Growth Ambitious = Growth Dynamic = Aggressive growth Audacious = Income/Growth Ambitious = Growth Dynamic = Aggressive growth Conservative = Capital preservation Moderate = Income
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MarkED Acknowledgments Original Developers Lelia Ventling and Sarah Bartlett Borich, MarkED Version 1.0 Copyright 2007 MarkED Resource Center
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