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INVESTMENTS 2INVESTMENTS 2VEHICLES FOR VEHICLES FOR
CHOICECHOICE
INVESTMENTS 2INVESTMENTS 2VEHICLES FOR VEHICLES FOR
CHOICECHOICE
Dr. NeidermeyerDr. Neidermeyer
Vehicles for Choice• Equity funds• Fixed-income funds• Mutual Funds• Real Estate• Call Options• Put Options• Derivatives
• Commodities• Precious Metals• Gems• Coins• Stamps• Antiques/collectibles
Equity funds
• Common stocks representing ownership in a corporation.
Characteristics of equities
• Residual ownership in the entity
• Voting rights
Types of Equity funds
• Blue-chip funds
• Growth funds
• Income funds
• Defensive stocks
• Cyclical stocks
• Speculative stocks
Indicators of Value• EPS• Net Asset Value per
share• Price-earnings ratio• Yield
Fixed-income securities
Provide a determinable rate of return on your investment which is fixed for the period of the investment.
Characteristics of Fixed-income Securities
• Interest-rate sensitive for valuation
• Rate of return is stated
Types of fixed-income securities
• Preferred stocks• Corporate bonds• Deep-discount
bonds• Municipal bonds
– General obligation– Revenue– IDBs
• U.S. Treasury issues
• U.S. savings bonds• Certificates of
Deposit• Savings Accounts
Indicators of Value for Fixed Securities
• Stipulated interest rate
• Time period for the investment
• Probability of interest rates changes during the term of the investment
Mutual Funds
• Pooled investor resources purchasing stocks, bonds and other securities chosen under the investment criteria established by the fund and implemented by the fund manager.
Characteristics of Mutual Fund Investments
• Offer diversification to investors• May be closed or open ended • May be load or no-load• May carry additional annual fees
– 12b-1– Annual management fee
Types of Mutual Funds• Stock:
– Growth– Equity income– Global– Index– Growth/income– International– sector
• Bond:– Junk– Corporate– Government– Municipal– World
• Other– Balanced– Money market
Value Indicators for Mutual Funds
• NAV: Net Asset Value of each fund is calculated at the end of each trading day
• The total market value of fund holdings is divided by the number of outstanding shares.
Real Estate Investments
• Acquisition of land and/or buildings for commercial use.
Characteristics of Real Estate Investments
• Made in anticipation of long-term appreciation.
• Usually leveraged.
• Value and appreciation dependent on demand.
Types of Real Estate Investments
• Land
• Buildings
Indicators of Real Estate Value
• Demand for occupancy space.
• Growing population
• Reasonable interest rates
Calls and Puts
• Market instruments which provide purchase or sale discretion to the investor.
Call/Put Characteristics
• A call provides the opportunity to purchase an investment at a stated price for a defined period of time.
• A put provides the opportunity to sell an investment at a stated price for a defined period of time.
Types of Calls & Puts
• These instruments exist for both stocks and bonds. They are actively traded on the open market.
Calls & Puts Indicators of Value
• The likely change in value for the instrument during its established life.
• The overall demand for the items to which the instruments provide market access.
Derivatives
• Contracts which offer risk/price protection to the purchaser of the instrument.
Characteristics of Derivatives
• Pseudo insurance policy for the holder• This instrument is a risk-management
technique• The instrument is available for business
situations in which one party is attempting to mitigate a potential shortfall in revenue or increase in cost.
Types of Derivatives• Derivative contracts are available for a
variety of business situations: e.g. interest-rate derivatives & foreign currency derivatives
Indicators of Value for Derivatives
• The likelihood of adverse market movement in price for the event being insured.
• The greater the probability of adverse movement, the greater the cost of the derivative contract.
Commodities
• Contracts calling for the delivery of named goods or services in the future.
Characteristics of Commodity Contracts
• Written at a fixed price
• Written for a state period of time
• Includes a penalty clause for non-timely delivery of the contracted item.
Types of Commodity Contracts
• Commodity contracts can virtually be purchased for any item in our economy.
• Usual products on commodity contracts would be oil, wheat, barley, pork bellies, etc.
Indicators of Value for Commodity Contracts
• Consumer demand for the respective commodity item and the probability of a change in the supply quantity would drive the value up or down.
Precious Metals
• Extractive resources which have value to consumers and/or for industrial uses in the production of goods & services.
Characteristics of Precious Metals
• Usually available in short supply
• Subject to demand swings
• May be subject to monopoly control
Types of Precious Metals• Gold
• Silver
• Magnesium
• Copper
Indicators of Value for Precious Metals
• Demand
• Supply
• Market control
Collectibles
• Listed items which individuals may accumulate because of intrinsic value to them or assumed on the part of others.
Collectible Characteristics• Usually limited in number
• May be old
• Appeal to particular purchaser preferences
• Usually limited sources of availability
• Usually appreciating in value
Types of Collectibles• Unlimited depending on collectors’
tastes
• May be gems, coins, stamps and/antiques
• Usually evolve in composition each generation as collector tastes vary
Indicators of Collectibles’ Value
• Strictly driven by the willingness of another to place enhanced value on an item in limited supply
• Market forces and consumer preferences dictate direction of demand and thereby, value swings for these items