investing savings and investing. why invest? hedge against inflation rise in a general level of...
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InvestingSavings and Investing
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Why Invest?
• Hedge against inflation• Rise in a general level of prices
• Investing to increase wealth• Invest to save for long term goals• Investing is fun and challenging
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The Rule of 72
• Technique used for estimating the number of years required to double one’s investment at a given rate of return• Divide 72 by the rate of return expressed
as a percentage
• To estimate the rate of return required to double your money in a specific time period, divide 72 by the number of years
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Risk
• Risk is the chance that an investment’s value with decrease• All investment carries risk
• Risk takers – those willing to accept more risk in the hopes of getting a greater return
• Risk averse – less willing to accept risk• Who tends to make more money in the
long term?
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Types of Risk
• Diversification – spreading the risk among many types of investment
• Short term risk is lower than long term risk• Can you predict the future?
• Interest rate risk – return on investment will not keep pace with inflation
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More Kinds of Risk
• Political risk – government actions that impact business conditions (regulations, tariffs, etc)
• Market risk – caused by business declines or interest rate fluctuations
• Nonmarket risk – risk unrelated to market trends (unpredictable)
• Company or industry risk – events that effect only one company or industry
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Criteria For Choosing an Investment
• Degree of safety• Degree of liquidity• Expected dividends or interest• Expected growth• Reasonable purchase price and fees• Tax benefits
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Investment Strategies
• Define your financial goals• Go slowly• Follow through – implement your plan• Keep good records• Seek good advice• Stay current and informed• Know your risk profile and comfort
zone
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Sources of Investment Information
• Newspapers• Investor Services and Newsletters• Financial Magazines• Online financial or news sites• Brokers
• Full service brokers provide clients with analysis and opinions based on their knowledge and industry information
• Discount brokers buy and sell securities for clients at a reduced price
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Additional Sources of Financial Info
• Financial advisors or certified financial planners• Usually receives a fee for service
• Annual reports or 10-Ks are a summary of a corporation’s financial results for the year
• Online investor education • Motley Fool (www.fool.com)• Teen investor (www.teeninvestor.com)