Chapter 11

Investing for your Future

Lesson 11.1 Investing Fundamentals I. Stages of Investing

Stage 1: Put-and-Take Account Emergency fund Financial advisors recommend you have 3-6

months net pay set aside for this fund Stage 2: Beginning Investing

Earn money with money Begin investing when budgets and spending

are stable, usually in 20s and 30s Stage 3: Systematic Investing

Investing on a regular and planned basis Usually happens in your 30s and 40s when

earnings potential is the highest Stage 4: Strategic Investing

Careful management of investment alternatives to maximize growth of your portfolio

Stage 5: Speculative Investing Final stage, you can make or lose a great

deal of money in a short period of time

Lesson 11.1 Investing Fundamentals

II. Reasons for Investing

Investing helps beat inflation

Rule of 72 is a technique for estimating the number of years required to double your money at a given rate of return. For Example: if an investment is yielding an average of 4%, it will take 18 years to double your money

Investing increases wealth

Investing is fun and challenging

Lesson 11.1 Investing Fundamentals

III. Risk and Return Diversification

Involves spreading the risk among many types of investments

Choose several types of investments such as stocks, bonds, and real estate

Types of risk Interest rate risk, political risk,

market risk, nonmarket risk, company or industry risk

Lesson 11.1 Investing Fundamentals IV. Investment Strategies

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, preferably exceeding

the inflation rate Reasonable purchase price and fees Tax benefits (saving or postponing tax liability)

Wise investment practices Define your financial goals

goals must be specific and measurable Go slowly

Don’t act on impulse if it sounds too good to be true, it probably is

Follow through Keep good records Seed good investment advice

don’t be afraid to ask questions Keep investment knowledge current Know your limits

Lesson 11.2: Exploring Investment Options

I. Sources of Financial Information Newspapers

Wall Street Journal Barron’s

Investor services and newsletters Moody’s Investors Service Standard and Poor’s Reports Value Lines These are found in the library, at brokerage firms and

online Financial magazines

Business Week Forbes Money Fortune Kiplinger’s Personal Finance

Brokers Merrill Lynch Fidelity Investments American Express

Financial advisors Annual reports

Every corporation is required to send an annual report to all its stockholders by the SEC

Online investor education

Lesson 11.2: Exploring Investment Options

II. Investment Options Low Risk/low return

Corporate and municipal bonds US government savings bonds Treasury securities

Medium risk/ medium return Stocks Mutual funds Annuities Real estate

High risk/ high return Futures Options Penny stocks collectibles