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Investment Fundamentals and Portfolio Management


Summarize reasons why people invest, what is required before beginning, how returns are earned, and some ways to obtain funds to invest. Determine your own investment philosophy. Recognize the variety of investments available. Identify the major factors that affect the return on investment. Specify some strategies of portfolio management for long-term investors. List three guidelines to use when deciding the best time to sell investments.

Establishing Investment Goals

Financial goals should be specific and measurable. Why are you accumulating these funds? How much do you need? How will you get it? How long will it take you to reach your goal? How much risk are you willing to assume? Are you willing to sacrifice current consumption to invest for the future? Is it realistic to try and save this amount?

Steps to Create a Personal Investing Plan

Step 1 My investment goals are: ____________________ ____________________ Step 2 By ___________, I will have obtained $_______. Step 3 I have $__________ available to invest. Date _____________

Step 9 Continue evaluating choices.

Step 8 Final decision 1._______________ 2._______________

Step 4 Possible investment alternatives: 1._________________ 2._________________ 3._________________ 4._________________

Step 7 Investment decision 1._______________ 2._______________ 3._______________

Step 6 Projected return on each alternative 1.__________ 2.__________ 3.__________ 4.__________

Step 5 Risk factors for each alternative 1.____________________ 2.____________________ 3.____________________ 4.____________________

Preparations for Investing

Achieve financial goals
Increase current income Gain wealth and financial security Have funds available for retirement

Preparations for Investing

Live within means Continue savings program Establish lines of credit Carry adequate insurance Establish investment goals

Preparations for Investing

Dividends Rent Capital gain/loss Rate of return or yield

Performing a Financial Checkup

Learn to live within your means pay off high interest credit card debt Provide adequate insurance protection Start an emergency fund three to nine months of living expenses Have other sources of cash for emergencies line of credit cash advance

Value of Having a Long-Term Investing Program

Many people dont start investing because

they only have a small amount to invest


Small amounts invested regularly

become large amounts over time

Factors That Affect Investment Decisions

Safety - minimal risk of loss Risk - uncertainty about the outcome inflation risk interest rate risk business failure risk market risk

Income From Investments

Safest CDs savings bonds T-bills Higher potential income municipal bonds corporate bonds preferred stocks mutual funds real estate

Investment Growth and Liquidity

Growth increase in value common stock growth stocks retain earnings bonds, mutual funds and real estate Liquidity ease and speed to convert an asset to cash

Management Strategies Long-Term Investors

Business-cycle timing Dollar-cost averaging

Portfolio diversification
Asset allocation

Investment Alternatives


What is a mutual fund?

investors money is pooled and invested by a professional fund manager
you buy shares in the fund

provides diversification to reduce risk

funds range from conservative to extremely speculative

match your needs with a funds objective

Sources of Investment Information

Newspapers Business Periodicals Government Publications Corporate Reports Statistical Averages Investor Services and newsletters
Standard and Poors stock reports Value Line Moodys investment service

Investment Philosophies

Best Time to Sell

Take profits Cut losses

If wouldnt buy it now, sell it