INVESTMENT

FUNDAMENTALS
Preparing for an Investment Program

Factors Affecting the Choice of Investments

An Overview of Investment Alternatives

Factors that Reduce Investment Risk

Sources of Investment Information

 Preparing for an Investment Program
 Establishing Investment Goals
- The financial goal should be specific and measurable. To
develop your goal ask your self…

[1] What will you use the money for?

[2] How much do you need to satisfy your investment goals?
[3] How will you obtain the money?
[4] How will long it take to obtain the money?
[5] How much risk are you willing to assume in an investment
program?
[6] What possible economic or personal condition could alter
your investment goals?
[7] Considering your economic circumstances, are your
investment goals reasonable?
[8] Are you willing to make the sacrifices necessary to ensure
that you meet your investment goals?
[9] What will be the consequences be if you don’t reach your
investment goal?

 Performing a Financial Check-up

• Work to balance your budget
• Obtain adequate insurance protection
• Start an emergency fund
 • Have access to other sources of cash for emergency
needs.

 Getting the Money Needed to Start an Investment

Program
- Priority of Investment Goal

1. Pay yourself first.

2. The advantage of employer-sponsored retirement
programs.
3. Participate in an elective savings program.
4. Make a savings effort one or two months each year.
5. Take advantage of gifts.
 The Value of Long-Term Investment Programs
- Many people never start an investmentprogram because
they have only small sums of money. But even small sums
grow over a long period of time.

For example
• After graduation you plan to invest $200 per month in the stock
market. If you can earn 6% per year on your stocks, how much
will you have accomulated after 10 years.

pmt= $200 I= 6/12= 0.5 n= 10x12= 120 FV=?

FV= $32, 775
 Factors Affecting the Choice of
 Safety and RiskInvestment
- Safety in any investment means minimal risk of loss.
- Risk means a measure of uncertainly about the out
come.
 Components of Risk Factor
• Inflation Risk
- during periods of high inflation your inevstment
return may not keep pace with the inflation rate.
• Interest Rate Risk
- you may invest in a bond at a 6%, rates later go up
to 8% your bond price falls.
 • Business Failure Risk
- bad management or products affect stocks and
corporate bonds and mutual funs that invest in stock.
• Market Risk
- prices fluctuate because of behaviors of investors.
• Global Investment Risk
- changes in currency affect the return on your
investment.
 Investment Income
• Safest Investments- predictable income
- Savings accounts and certificates of deposit
- U.S. saving bonds
- United States treasury bills
 • Higher potential income investments include.....
- Municipal bonds
- Corporate bonds
- Prefered stocks and income common stocks
- Income mutual funds
- Real state rental property
 Investment Growth
• Growth means investment will increase in value
- Common stock
- Growth companies pay little or no dividends, but
reinvest in the company
-Mutual funds, government and corporate bonds, and
real state offer growth potential
 - Gemstones and collectibles- more speculative
 Investment Liquidity
• Ability to buy or sell an investment quickly without
substantially affecting the investment's value.

An Overview of Investment
Alternatives
 Stock or Equity Financing
• Equity capital is provided by stock holders who
buy shares of a company's stock.
• Stockholders are the owners and share in the
success of the company.
 • The corporation is not required to repay the money
obtained from the sale of stock.
• The corporation is under no legal obligations to pay
dividends to stockholders: they may insteadretain all
or part of earnings.

 Coporate and Government Bonds

• Abond is a loan to a corporation, the federal
government, or a municipality
• Bondholders recieves periodic interest
payments, and the principal is repaid at
maturity(1-30years).
 Mutual Funds
• Investor's money is pooled and invested by a
professional fund manager.
• You buys shares in the fund.
• Provide diversification to reduce risk
• Funds range from coservative to extremely
speculative.
• Match your needs with a fund's objective.

 Real State
• The goal of a real state investment is to buy a
property and sell it ina profit. Nationally, 3%
 appreciation in price a year is average.
• Location is important
• Before you buy real state....
- Is the the property priced competitively?
- What type, if any, of financing is available?
- How much are the taxes?
- What is the condition of the buildins or houses in the
immediate area?
- Why are the present owners selling?
- Could the property decrease in value?

 Other Investment Alternatives

• Speculative Investments
- a speculative investment is a high-risk investment
made in the hopeof earning a relatively large profit in a
short time. Typically speculative investments include:
- antiques and collectibles
- call and put options
- derivatives
- commaodities
- coins and stamps
- precious metals and gemstones
 Portfolio Management and Asset Allocation
• Asset allocation- the process of placing your
assets among several types of investments wich is
lessen
 your investment risk.
• Types of Asset
- stocks of large corporations
- stocks of medium sized corporation
- stock of small companies
- foriegn stocks
- bonds
- cash
• Time Factor
- the longer that you are invested the better your
returns.
• Your Age
- the type and style of your investments should
charge with your age.
  A Plan for Investing
- Establish realistic goals
- Determine the amount of money you needed to meet
your goals
- Specify the amount of money available to fund your
investments
- List different investments you want to evaluate
- Evaluate risk and potential return for each
- Reduce possible investments to a reasonable number
- Choose atleast two different investment
- Continue to evaluate yuor investment program