Investing for Your Future

Personal Finance Chapter 11Lesson 11.1 – Investing Fundamentals

Lesson 11.2 – Exploring Investment Options

Stages of Investing

Goals for investing vary person to personAs excess income grows, you can

progress through different stages of investing

Five stages of investing:Put-and Take AccountBeginning InvestingSystematic InvestingStrategic InvestingSpeculative Investing

Stage 1

• Put-and-Take Account• First savings account is a temporary

account• Purpose is to pay for short-term needs

with enough left over to cover unexpected expenses

• Many financial advisers recommend that you have three to six months net pay set aside for this type of fund

Stage 2

• Beginning investing• Investing is the use of savings to

earn a financial return• Investing begins when your savings

are permanent rather than temporary

• Initial investment should be conservative and low-risk

• Don’t have a lot of money to invest

Stage 3

• Systematic Investing• After you become comfortable with

your beginning investments, you can start investing on a regular and planned basis

• Regularly set aside a certain amount each month for investing

• Goals are long-range – investing for a financially secure retirement

Stage 4

• Strategic Investing– The careful management of investment

alternatives to maximize growth of your portfolio over the next 5-10 years

• You invest in different types of securities to try to maximize your returns

Stage 5

• Speculative Investing• Occurs when you are investing

regularly but still have money available to take bigger risks

• Can make – or lose – a large amount of money in a short period of time

• Many investors never choose to speculate

Reasons for Investing

• Investing Helps Beat Inflation–When prices are rising rapidly, you may

not be able to earn a return that beats inflation

• Investing Increases Wealth– Over the long run, investments earn

higher profits than savings do

• Investing is Fun and Challenging

Risk and Return

• All types of investing involve some degree of risk

• Diversification is one way to reduce risk– Spread the risk among many types of

investments

• Types of Risk– Interest-rate Risk– Political Risk–Market Risk– Company or Industry Risk

Investment Strategies

• Criteria for Choosing an Investment1. Safety2. High liquidity3. High dividends or interest4. Growth in value that exceeds the

inflation rate5. Reasonable purchase price6. Tax benefits

Wise Investment Practices

• Define Your Financial Goals• Go Slowly• Follow Through• Keep Good Records• Seek Good Investment Advice• Keep Investment Knowledge Current• Know Your Limits

Assignment

• Chapter 11 Worksheet – Due Wednesday• If you want some extra credit points, you can

do the questions for Chapter 11 on page 327. They must be placed in my drop box at the beginning of class on Wednesday.

• Start thinking about companies you might be interested in investing in.

Sources of Financial Information

• Newspapers• Investor Services and Newsletters• Financial Magazines• Brokers• Financial Advisers• Annual Reports and Financial

Statements• Online Investor Education

Investment Options

• Investments can be put into different groups according to their degree of risk and expected return:

1. Low Risk/Low-to Medium Return2. Medium Risk/Medium Return3. High Risk/High Return

Low Risk/Low-to-Medium Return

• Corporate and Municipal Bonds– Interest usually paid every six months– Principal repaid at maturity– Interest on gov’t bonds usually tax-free

• U.S. Government Savings Bonds– Series EE Savings Bond (discount bond)– Series HH Savings Bond (exchange for EE Bonds)

• Treasury Securities– T-bills – Treasury Notes– Treasury Bonds

Medium Risk/Medium Return

• Mutual Funds– Large, professionally managed group of

investments– Fastest growing segment of financial

services industry

• Annuities– Sold by insurance companies

• Self-Managed Retirement Accounts– 401(k), 403(b), IRA, Keogh Plan

• Real Estate

High Risk/High Return

• Stocks• Futures• Options• Penny Stocks• Collectibles