I. Introduction to Investing

A. Reasons to Invest 1. Achieve financial goals 2. Increase income 3. Prepare for retirement 4. Gain wealth and feeling of financial security

Investing Investing is putting your money to work. Investing is putting your money to work. Securities = stocks, bonds, mutual funds, real estate, etc. Securities = stocks, bonds, mutual funds, real estate, etc. Stocks = shares of ownership in a corporation Stocks = shares of ownership in a corporation Bonds = loans to corporations and governments Bonds = loans to corporations and governments Portfolio = collection of investment assets Portfolio = collection of investment assets

B. How do you make money on investments? 1. Return = total income from an investment  Current income (interest or dividends)  Capital gain (or loss) (increase in stock price)  Return = Capital gain + current income - fees  Return on Investment (%)= return/initial investment X 100

Example: Ashley purchased 100 shares of IBM stock for $100 per share and sold this same stock one year later for $125 per share. Dividends of $5 per share were paid during the year. The return on this stock transaction was ? What was the ROI?

C. Important to discover your investment philosophy The greater the risk, the greater the potential yield OR potential loss a.Ultraconservative: takes no risk, little yield. b.Conservative: accepts little risks & rewarded w/ low yield: diversified investments

C. Important to discover your own investment philosophy c. Moderate: slow & steady growth in investments Invests for long-term Invests for long-term Comfortable with rising & falling market conditions (bull and bear markets) Comfortable with rising & falling market conditions (bull and bear markets) d. Aggressive: invests for quick $, willing to take high risk, not much diversification

Investment Pyramid

Investment Strategies 1.Business cycle approach Buy when stocks low, sell when highBuy when stocks low, sell when high  Buy investments during recession/bear market, sell during expansion market 2. Portfolio diversification Range of investment asset typesRange of investment asset types Choose collection of investmentsChoose collection of investments with different degrees of risk OR with different degrees of risk OR diversify within an investment vehicle (mutual funds) diversify within an investment vehicle (mutual funds)

Investment Strategies 3. Asset allocation Determine portion of investment portfolio devote to various types of assets Determine portion of investment portfolio devote to various types of assets Must re-allocate when one type grows too large or too small  Rebalancing Must re-allocate when one type grows too large or too small  Rebalancing 4. Dollar cost averaging Invest equals sums of money at regular intervals Invest equals sums of money at regular intervals Buy more stocks when price is low Buy more stocks when price is low Buy less when price is high Buy less when price is high

Stocks 70% Bonds 20% Cash Inv. 10% Stocks 40% Bonds 40% Cash Inv. 20% Stocks 10% Bonds 20% Cash Inv. 70%