1. Personal Finance Garman/Forgue Ninth Edition
Chapter 13: Investment Fundamentals
PPT slide program prepared by Amy Forgue and Ray Forgue.

2. Learning Objectives Explain how to get started as an investor.
Discover your own investment philosophy.
Identify the kinds of investments that match your interests.
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3. Learning Objectives
Describe the major factors that affect the rate of return on investments.
Decide which of the five long-term investment strategies you will utilize.
Create your own investment plan.
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4. Starting Your Investment Program
Investing is more than saving.
Savings
Investing
Securities
Stocks
Portfolio
Are you ready to invest?
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5. Starting Your Investment Program
Decide why you want to invest.
Where can you get the money to invest?
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6. Starting Your Investment Program
What investment returns are possible?
Financial (or Business) Risk
Total Return
Current Income
Interest
Rent
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7. Starting Your Investment Program
What investment returns are possible?
Dividend
Capital Gain
Capital Loss
Rate of Return (or Yield)
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8. Your Investment Philosophy
How to handle investment risk
Pure risk
Speculative risk
Investment risk
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9. What is your Investment Philosophy?
Are you a conservative Investor?
Preservation of capital
Are you a moderate investor?
Risk indifferent
Are you an aggressive investor?
Risk seeker
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10. Your Investment Philosophy
Should you take an active or passive investing approach?
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11. Identify the kinds of investments you want to make.
Do you want to lend or own?
Lend = Bonds
Debts
Fixed maturity
Fixed income
Equities
Choose investments for their components of total return.
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12. Random and Market Risk Random (or unsystematic) risk Diversification
Systematic (or market or undiversifiable) risk
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13. Other Types of Investment Risks
Business failure (or financial) fisk
Inflation (or purchasing power) risk
Time risk
Business cycle risk
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14. Other Types of Investment Risks
Market-volatility risk
Liquidity risk
Reinvestment risk
Marketability risk
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15. Returns Transaction costs reduce returns
Commissions
Leverage may increase returns.
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16. The Tax Consequences in Investment Fundamentals
After-Tax Return
Income Versus Capital Gain
Tax-Deferred Investments
Tax-Exempt Income
Tax-Exempt Investments
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17. Establish Your Long-Term Investment Strategy
Real Rate of Return
Securities Markets
Bear Market
Bull Market
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18. Establish Your Long-Term Investment Strategy
Long-term investors understand market timing.
They are market timers.
Calculate the real rate of return (after taxes and inflation) on investments.
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19. Establish Your Long-Term Investment Strategy
Strategy 1: Buy and hold anticipates long-term economic growth.
Buy-and-Hold (or Buy to Hold)
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20. Establish Your Long-Term Investment Strategy
Strategy 2: Dollar-cost averaging buys at “below-average” costs.
Dollar-Cost Averaging (or Cost Averaging)
Below-Average Costs
Dollar-cost averaging in a fluctuating market
Average Share Price
Average Share Cost
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21. Establish Your Long-Term Investment Strategy
Strategy 3: Portfolio diversification reduces portfolio volatility.
Strategy 4: Asset allocation keeps you in the right investment categories at the right time.
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22. Establish Your Long-Term Investment Strategy
Strategy 5: Modern portfolio theory evolves from asset allocation
Modern Portfolio Theory (or MPT)
Monte Carlo Analysis
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23. The Top 3 Financial Missteps In Investing
People slip up in when they do the following:
1. Invest only money that is left over at the end of the month.
2. Follow a conservative investment philosophy for long-term goals.
3. Fail to regularly rebalance the assets in their portfolio.
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24. Good Money Habits in Investing Fundamentals
Sacrifice some of your income by investing for your future needs and lifestyle.
Start early in life to invest in a diversified portfolio of assets consistent with your investment philosophy.
When investing for the long term, willingly accept more risk.
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25. Good Money Habits in Investing Fundamentals
Invest regularly through your employer’s retirement plan using an asset allocation strategy.
Invest no more than 10 percent of your portfolio in your company stock, or any single company stock, for that matter.
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26. Good Money Habits in Investing Fundamentals
Follow the buy-and-hold long-term approach to investing.
Invest in stocks, mutual funds, bonds, and real estate, not life insurance or annuities.
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