*Personal Financial Planning GuideChapter 3-6: Building Wealth through Investment Planning

*Investment Planning StepsSteps to investment planning:Set goalsKnow investment vehiclesKnow financial markets and conceptsDevelop strategyImplement strategyMonitor performance

*Step 1: Financial GoalsFactors affecting financial goals:__________________ horizon__________________Your _________________________ situationPersonal profile

*Personal ProfileYour investment profile includes_____________________________________________________________________ needs_______________________ needs_______________ rate_______________ tolerance

*Step 2: Investment VehiclesMajor categories of investmentsCashBondsStocksOther (real estate, gold, etc.)

*Categories of Investments: CashCash includes any asset with high liquidity and little or no risk. Examples:Bank accounts__________________________ mutual fundsUS Treasury billsSavings bonds

*Categories of Investments: BondsBonds are debt instruments issued by corporations and governments. Advantages of bondsRegular _________________Diversify other investments

*Categories of Investments: BondsTypes of bondsCorporateUS GovernmentMunicipalMortgage-backed securities

*Categories of Investments: Municipal BondsThe interest earned on municipal bonds is frequently exempt from ______________ ___________. In choosing between bonds, you must always consider the after-tax return.Municipal bonds:Good for investors with high _____________.Bad in a ______________________ account.

*Categories of Investments: StocksCommon stock provides return through dividends and capital gains.

*Step 3: Know Financial Markets and ConceptsImportant financial concepts:________________________________Portfolio structure/asset allocation

*Financial Concepts: ReturnHistorical returns can be observed and measured, but what is important to investors are ____________________ returns.

*Financial Concepts: RiskInvestments, by risk (low to high)CashUS government securitiesInvestment grade bonds (corp., muni)Stock and junk bonds

*Financial Concepts: Portfolio StructureDiversification by itself does not increase returns. However, by diversifying, you reduce ________________.

*Step 4: Develop Investment StrategyOne of the most important parts of your investment strategy, is ____________ ________________________:Identify asset classes to be includedDetermine % to be invested in eachPeriodically rebalance

Investment Strategy (Cont.)Another important consideration: take advantage of payroll deduction:Payroll deduction makes saving and investing automatic.By investing every month, you take advantage of _________________________________________.

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Investment Strategy (Cont.)Another important consideration: take advantage of tax shelters.Tax shelters (401k accounts, IRAs) ______________ payment of taxes.Many employers match contributions to your retirement account.

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*Step 5: Implement Your StrategyImplementing your financial plan includes:Who to invest with (how to buy)When to buy

*Implement Your StrategyYour financial plan can be implemented with:A financial plannerA brokerProfessional money managerMutual funds

*Implement Your StrategyWhen to buy: on a ___________________ ________________.One of the biggest mistakes investors make is to time the market. This usually results in buying high and selling low.Saving and investing through payroll deduction avoids trying to second guess which way the market is going.

*Step 6: Monitor PerformanceIt is important to measure investment returns and to compare your returns with _____________________.Investment benchmark: an index of returns.Your benchmarks should be based on your __________________ allocation.

*Mutual FundsThe most popular method of investing in stocks and bonds is through mutual funds.When you invest in a mutual fund, you become part owner in the portfolio of securities held by the fund.

*Mutual FundsMutual funds offer:Professional managementRecord keeping_______________________Low _____________________ costs (in some cases)

*Types of Mutual FundsMutual funds can be classified by the types of assets they hold:Stock fundsBond fundsMoney market fundsIndexSector

*Types of Mutual FundsMutual funds can also be classified as: DomesticForeignWorld

*Mutual FundsCost of investing in mutual funds include:Front-end and back-end loadsAnnual management fees12 b-1 fees

*Mutual Fund InformationSources of info on mutual funds include:MorningstarValue LineInvestment Company InstitutePopular press (Wall Street Journal, Barrons, Business Week)ProspectusFunds website

*How to Pick a Mutual fundIn comparing mutual funds, look for:No _________________Low _________________Matches your objectives and ____________ toleranceTax efficiencyGood recent performance (3-5 years)No recent change in management