1. Chapter 11 Investing for Your Future

2. Goals for Chapter 11.1 Investing fundamentals Describe the stages of investing and the relationship between risk and potential return. Describe the stages of investing and the relationship between risk and potential return. Explain effective investment strategies, criteria for choosing an investment, and steps for investing wisely. Explain effective investment strategies, criteria for choosing an investment, and steps for investing wisely.

3. Stages of Investing Stage 1. Put-and-Take Account Stage 1. Put-and-Take Account Typically a checking account. It is wise to have at least three months income in this account at all times. Typically a checking account. It is wise to have at least three months income in this account at all times. Stage 2. Beginning Investing Stage 2. Beginning Investing Investing is the use of savings to earn a financial return. Investing is the use of savings to earn a financial return. At this stage of investing, your savings are becoming more “permanent”. You do not have a lot of money to invest and are typically more conservative in you investing. At this stage of investing, your savings are becoming more “permanent”. You do not have a lot of money to invest and are typically more conservative in you investing.

4. Stage 3. Systematic Investing Stage 3. Systematic Investing Each month, you set aside an amount to be invested, typically in a mutual fund. At this stage, your goals are long-term and are investing for financial security. Each month, you set aside an amount to be invested, typically in a mutual fund. At this stage, your goals are long-term and are investing for financial security. Stage 4. Strategic Investing Stage 4. Strategic Investing Strategic Investing is the careful management of investment alternatives to maximize the growth of your portfolio. Strategic Investing is the careful management of investment alternatives to maximize the growth of your portfolio.

5. Stage 5. Speculative Investing Stage 5. Speculative Investing In this stage, you can make or lose a significant amount of money in a short period of time. In this stage, you can make or lose a significant amount of money in a short period of time.

6. Reasons for Investing Investing Helps Beat Inflation Investing Helps Beat Inflation Inflation is a rise in the general level of prices. Inflation is a rise in the general level of prices. Investing Increases Wealth Investing Increases Wealth Investing Is Fun and Challenging Investing Is Fun and Challenging

7. Risk and Return Risk is the chance that an investment’s value will decrease. The greater the risk you are willing to take, the greater the potential returns. Risk is the chance that an investment’s value will decrease. The greater the risk you are willing to take, the greater the potential returns. One way to minimize risk is through diversification, or the spreading of risk among many types of investments. One way to minimize risk is through diversification, or the spreading of risk among many types of investments.

8. Types of Risk Interest-Rate Risk Interest-Rate Risk During inflationary times, there is interest rate risk that the return on an investment will not keep pace with the inflation rate. During inflationary times, there is interest rate risk that the return on an investment will not keep pace with the inflation rate. Political Risk Political Risk Increased taxes and certain regulations, such as costly environmental controls that businesses are required to apply, can make some investments less attractive. Increased taxes and certain regulations, such as costly environmental controls that businesses are required to apply, can make some investments less attractive. Market Risk Market Risk Caused by business declines, sudden national or world events. Caused by business declines, sudden national or world events. Company or Industry Risk Company or Industry Risk Produced by events that afffect only one company or industry. Produced by events that afffect only one company or industry.

9. Criteria for Choosing an Investment Safety (minimal risk of loss) Safety (minimal risk of loss) High Liquidity (getting your money quickly) High Liquidity (getting your money quickly) High dividends or interest High dividends or interest Growth in value that exceeds the inflation rate Growth in value that exceeds the inflation rate Reasonable (low) purchase price (initial cost) Reasonable (low) purchase price (initial cost) Tax benefits (saving or postponing tax liability) Tax benefits (saving or postponing tax liability)

10. Wise Investment Practices Define Your Financial Goals Define Your Financial Goals Go Slowly Go Slowly Follow Through Follow Through Keep Good Records Keep Good Records Seek Good Investment Advice Seek Good Investment Advice Keep Investment Knowledge Current Keep Investment Knowledge Current Know Your Limits Know Your Limits

11. Goals for Chapter 11.2 Exploring Investment Options List and describe sources of financial information useful for making investment decisions. List and describe sources of financial information useful for making investment decisions. List and define basic investment options, rated b risk. List and define basic investment options, rated b risk.

12. Sources of Financial Information Newspapers Newspapers Investor Services and Newsletters Investor Services and Newsletters Standard and Poor’s, Value Line Standard and Poor’s, Value Line Financial Magazines Financial Magazines Brokers Brokers Full Service Brokers provide clients with analysis and opinions based on their judgments and the opinions of experts at the company. Full Service Brokers provide clients with analysis and opinions based on their judgments and the opinions of experts at the company. Discount Brokers buy and sell securities for clients at a reduced commission, but offer little or no advice. Discount Brokers buy and sell securities for clients at a reduced commission, but offer little or no advice.

13. Financial Advisors Financial Advisors Professional investment planners are called financial advisors. Professional investment planners are called financial advisors. Annual Reports and Financial Statements Annual Reports and Financial Statements An annual report is a summary of a corporation’s financial results for the year and prospects for the future. An annual report is a summary of a corporation’s financial results for the year and prospects for the future.

14. Investment Options Low Risk/Low-to-Medium Return Low Risk/Low-to-Medium Return Bonds are debt obligations of corporations or state or local governments. Bonds are debt obligations of corporations or state or local governments. U.S. Government Savings Bonds U.S. Government Savings Bonds Discount Bonds are purchased at a discount to face value and pay no interest. You receive face value at maturity. Discount Bonds are purchased at a discount to face value and pay no interest. You receive face value at maturity. Treasury Securities Treasury Securities U.S. Treasury bills are available in denominations of $10,000 and then in increments of $5,000 or more. The bill is usually a three-month, six-month, or one- year government obligation. U.S. Treasury bills are available in denominations of $10,000 and then in increments of $5,000 or more. The bill is usually a three-month, six-month, or one- year government obligation.

15. Treasury Notes are issued in units of $1,000 or $5,000. Maturities range from two years to ten years. Treasury Notes are issued in units of $1,000 or $5,000. Maturities range from two years to ten years. Treasury Bonds are issued in minimum units of $1,000 with maturities ranging from 10 to 30 years. Treasury Bonds are issued in minimum units of $1,000 with maturities ranging from 10 to 30 years.

16. Medium Risk/Medium Return You can buy shares in a large, professionally managed group of investments called a mutual fund. You can buy shares in a large, professionally managed group of investments called a mutual fund. An annuity is a contract sold by an insurance company that provides the investor with a series of regular payments, usually after retirement. An annuity is a contract sold by an insurance company that provides the investor with a series of regular payments, usually after retirement. Real Estate Real Estate

17. High Risk/High Return Stock is a unit of ownership in a corporation. Stock is a unit of ownership in a corporation. Futures are contracts to buy and sell commodities or stocks for a specified price on a specified date in the future. Futures are contracts to buy and sell commodities or stocks for a specified price on a specified date in the future. An option is the right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period. An option is the right, but not the obligation, to buy or sell a commodity or stock for a specified price within a specified time period. Penny stocks are low-priced stocks of small companies that have no track record. Penny stocks are low-priced stocks of small companies that have no track record.