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Financial MarketsFinancial Markets

The place where entities with surplus funds and those requiring funds transact business. The financial market comprises:

Money MarketBond MarketStock Market

Money MarketMoney Market

The market place where debt instruments that matures within one year are purchased and sold.

Money Market InstrumentsMoney Market Instruments

Certificate of DepositsMoney Market FundsRepurchase Agreements (Repos)Commercial PaperTreasury Bills

GOJ Treasury BillGOJ Treasury Bill

BOJ Repurchase AgreementBOJ Repurchase Agreement

Bond MarketBond Market

It is the market-place for the purchase and sale of debt instruments that expires in over one year.

Bond Market InstrumentsBond Market Instruments

A bond is a medium to long term loan that pays interest during a fixed term. Types of bonds are:

Government BondsCorporate Bonds

GOJ VR LRSGOJ VR LRS

GOJ FR LRSGOJ FR LRS

GOJ Investment DebentureGOJ Investment Debenture

Stock Exchange or Stock Stock Exchange or Stock MarketMarket

An organized marketplace where buyers and sellers are brought together to buy and sell stocks and must follow certain rules, regulations and guidelines.

Stocks/Shares Stocks/Shares

Certificates representing ownership in a corporation and the appropriate claim on the corporation's earnings and assets. There are two types of stocks:

Preferred Stocks/Shares

Common Stocks/Shares

InvestingInvestingA process of wealth accumulation

involving the purchase and sale of assets and management of the risk/ return dynamics.

Fundamental Concepts

in Investing

Fundamental Concepts

in Investing

Risk and VolatilityRisk and Volatility•Inflationary risk

•Investment or credit risk

•Interest rate risk

When considering your own risk tolerance, you should understand that investments associated with higher risk typically offer higher reward potential over time. A key factor to successful investing is to identify which types of risk you are willing to assume and which you want to mitigate.

Total ReturnTotal Return

In selecting investments based upon their expected total return, you should understand which portion is generated from income and which from growth. Usually, the greater the reliance on income, the lower the market risk but the greater the long-term purchasing power (or inflationary) risk.

Liquidity Liquidity

A "liquid" investment is one that can be readily turned into cash if you need the funds on short notice. Investments can vary greatly in their degrees of liquidity. Money Market Funds and savings accounts are very liquid; so are investments with short maturity dates such as Certificates of Deposits (CDs).

Time HorizonTime HorizonDifferent investors have different time frames in which to achieve their investment objectives. Generally, young investors with long time horizons should be able to assume greater risks because they have more time to offset any losses with the higher return potential of investments with greater risk. Older investors, however, often choose to reduce risk because they have less time to recoup losses.

DiversificationDiversification

Building a diversified portfolio, with securities spread across different investment classes, can help you avoid the risk of having all your eggs in one basket. By mixing industries and types of assets, you spread your risk. A particular market condition will have less impact if your portfolio consists of a wide assortment of securities than if you purchase only one type of security.

Tax ConsequencesTax Consequences Building a diversified portfolio, with securities spread across different investment classes, can help you avoid the risk of having all your eggs in one basket. By mixing industries and types of assets, you spread your risk. A particular market condition will have less impact if your portfolio consists of a wide assortment of securities than if you purchase only one type of security.

Dollar Cost Averaging Dollar Cost Averaging

Dollar cost averaging, the practice of committing a fixed amount of money to an investment program on a regular basis, is a popular practice with many long-term investors. By investing a set amount regularly (usually monthly or quarterly), investors are able to avoid the pitfalls of trying to time market peaks and valleys. Also, because the dollar amount of the investments is set, investors who practice dollar cost averaging are able to buy more shares of a stock or mutual fund when they are less costly and fewer shares when they are more expensive.

Value of Time

The design of your portfolio should take advantage of time and conform to your personal objectives and risk tolerance.

High - Yield

“Junk” Bonds

Common Stocks

Preferred Stocks

Mortgaged-Backed Securities

Corporate Bonds

Municipal Bonds

Government Securities

Certificates of Deposits

Treasury Bills

Money Market Funds

Passbook Accounts

THE RISK PYRAMID

Investor ProfileInvestor Profile

Speaks to the risk/return preferences of investors. The basic profiles are:

Conservative

Moderate

Aggressive

Asset AllocationAsset Allocationthe proportion of certain types of basic

investments in your portfolio -- is an important component in a total portfolio approach to investing

Developing an asset allocation strategy can help you capitalize on the unique risk and return features of different basic investment types, or asset classes, and reduce the volatility of your portfolio.

Consevative

Stocks35%

Bonds30%

Cash35%

Moderate

Bonds44%

Stocks55%

Cash1%

ASSET ALLOCATION - YOUNG INVESTOR

Aggressive

Cash0%

Bonds25%

Stocks75%

Conservative

Cash45%Stocks

30%

Bonds25%

ASSET ALLOCATION - MIDLIFE INVESTOR

Moderate

Stocks50%

Cash10%

Bonds40%

Aggressive

Bonds30%

Cash0%

Stocks70%

ASSET ALLOCATION - PRE-RETIRED INVESTOR

Conservative

Stocks25%Cash

54%

Bonds21%

Moderate

Stocks45%

Bonds36%

Cash19%

Aggressive

Stocks65%

Cash0%

Bonds35%

ASSET ALLOCATION -RETIRED INVESTOR

ConservativeStocks

30%

Bonds25%

Cash45%

Moderate

Bonds33%

Cash27%

Stocks40%

Aggressive

Cash0%

Stocks60%

Bonds40%

ASSET ALLOCATION - CONSERVATIVE INVESTOR

Young Investor

Stocks35%

Bonds30%

Cash35%

Mid Life

Cash45%Stocks

30%

Bonds25%

Pre-Retired

Stocks25%Cash

54%

Bonds21%

RetiredStocks

30%

Bonds25%

Cash45%

ASSET ALLOCATION -MODERATE INVESTORASSET ALLOCATION -MODERATE INVESTOR

Young

Bonds44%

Stocks55%

Cash1%

Mid Life

Stocks50%

Cash10%

Bonds40%

Pre-Retired

Stocks45%

Bonds36%

Cash19%

Moderate

Bonds33%

Cash27%

Stocks40%

ASSET ALLOCATION -AGGRESSIVE INVESTORASSET ALLOCATION -AGGRESSIVE INVESTOR

Young

Cash0%

Bonds25%

Stocks75%

Mid Life

Bonds30%

Cash0%

Stocks70%

Pre-Retired

Stocks65%

Cash0%

Bonds35%

Retired

Cash0%

Stocks60%

Bonds40%

THE INVESTMENT PROCESSTHE INVESTMENT PROCESS

Establish your goals.Line up the MoneyAssess your risk appetite.Allocate the money according to the

goals.Decide on your asset allocation.Find a financial advisor/mentor.Improve your financial intelligence.

Sources of Investment Information

Friends & Family

The Street

Financial Newspapers

Edward Gayle & Company