LAP: QS-041LAP: QS-041

Investment Selection FactorsInvestment Selection Factors

Objectives

Describe factors in selecting investments.Describe factors in selecting investments.

Discuss the effect of personal factors in selecting investments.Discuss the effect of personal factors in selecting investments.

Describe factors in selecting investments.Describe factors in selecting investments.

Objective

Researching Investment Choices

Very important! Very important!

Research the investment itself. Research the investment itself.

Research yourself. Research yourself.

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

Discuss the effect of personal factors in selecting investments.

Discuss the effect of personal factors in selecting investments.

ObjectiveObjective

Personal Factors to Consider

Risk toleranceRisk 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

Personal Factors to Consider

Risk ToleranceRisk 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

Personal Factors to Consider

•Age and life phase•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• Marriage and familyand family

Short term—less than 5 years

Intermediate term—5 to 15 years

Long term—15 years or longer

Short term—less than 5 years

Intermediate term—5 to 15 years

Long term—15 years or longer

Time horizonTime horizon

Personal Factors to Consider

Personal Factors to Consider

Need for LiquidityNeed for Liquidity

Money you may need soon must be liquid!

Money you may need soon must be liquid!

Converting investment dollars back into cash

Converting investment dollars back into cash

Personal Factors to Consider

Need for LiquidityNeed for Liquidity

• Liquid• Liquid • Not liquid• Not liquid

• Savings accounts• Savings accounts

• Money market accounts

• Money market accounts

• Stocks• Stocks

• CDs• CDs

• Bonds• Bonds

• Retirement accounts

• Retirement accounts

Personal Factors to Consider

Need to avoid feesNeed to avoid fees

“No load” mutual funds

DSPs—Direct Stock Purchase

DRIPs—Dividend Reinvestment Plan

Personal Factors to Consider

Never too early to think about retirement

Never too early to think about retirement

Retirement = financial independence

Retirement = financial independence

Need to minimize taxesNeed to minimize taxes

TAXESTAXES

Tax-minimizing retirement plansTax-minimizing retirement plans

Personal Factors to Consider

Need to minimize taxesNeed to minimize taxes

TAXESTAXES

Tax-deferred retirement plans Tax-deferred retirement plans

• 401(k)• 401(k)

• 403(b)• 403(b)

• 457• 457

• IRA (Individual Retirement Account) • IRA (Individual Retirement Account)

Non-tax-deferred retirement plans

Non-tax-deferred retirement plans• Roth IRA• Roth IRA

“Investor Types”“Investor Types”Quick Case

• Audacious = Income/Growth

• Ambitious = Growth

• Dynamic = Aggressive growth

• Audacious = Income/Growth

• Ambitious = Growth

• Dynamic = Aggressive growth

• Conservative = Capital preservation• Conservative = Capital preservation

• Moderate = Income• Moderate = Income

MarkED

Acknowledgments

Original DevelopersLelia Ventling and Sarah Bartlett Borich , MarkED

Version 1.0

Copyright 2007MarkED Resource Center

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