pfin 4 investment planning 11 copyright ©2016 cengage learning. all rights reserved. may not be...
TRANSCRIPT
PFIN 4
Investment Planning
11
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
GITMAN/ JOEHNK/ BILLINGSLEY
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1 Discuss the role investing plays in financial planning process and identify several different investment objectives
2 Distinguish between primary and secondary markets as well as between broker and dealer markets
3 Explain the process of buying and selling securities and recognize different types of orders
LEARNING OUTCOMES
PFIN4 | CH11
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4 Develop an appreciation of how various forms of investment information can lead to better investing skills and returns
5 Gain a basic understanding of the growing impact of the computer and Internet on the field of investments
6 Describe an investment portfolio and how you’d go about developing, monitoring, and managing a portfolio of securities
LEARNING OUTCOMES (continued)
PFIN4 | CH11
Investing
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• Process of placing money in some medium in the expectation of receiving future benefit
• Speculating: Future value and expected returns are highly uncertain
PFIN4 | CH11
Investment Objectives
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• Enhance current income• Save for major purchase• Accumulate funds for retirement• Seek shelter from taxes
PFIN4 | CH11
Ways to Invest
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• Common stock• Bonds• Preferred and convertible securities• Mutual funds, exchange traded funds
(ETFs), and exchange traded notes (ETNs)• Real estate
PFIN4 | CH11
Securities Markets
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• Marketplace in which stocks, bonds, and financial instruments are traded• Primary market - New securities are sold to
the public by an issuer• Secondary market - Old securities are traded
between investors
PFIN4 | CH11
Exhibit 11.1
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U.S. Broker and Dealer Markets
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Regulating the Securities Markets
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• To ensure full disclosure of information with respect to new securities
• Securities and Exchange Commission (SEC): Regulates the disclosure of information about securities and oversees the operation of the securities exchanges and markets
Securities Act of 1933
• To provide SEC power to regulate organized securities exchanges and the OTC market
Securities Exchange Act of 1934
Regulating the Securities Markets
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Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
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• To improve accountability and transparency in the U.S. financial system
• To discontinue the “too big to fail” regulatory approach
PFIN4 | CH11
Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
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• To protect American taxpayers from costly government bailouts
• To protect consumers from exploitative financial services practices
PFIN4 | CH11
Significant Federal Legislation
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Bull Market and Bear Market
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Stockbroker (Account Executives)
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• Person who:• Buys and sells securities on behalf of clients• Gives clients investment advice and
information• Required to understand the client’s
investment objectives
PFIN4 | CH11
Types of Broker
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Brokerage Fees
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• Commissions received by brokerage firms for executing buy and sell orders for their clients• Odd lot: Quantity of fewer than 100 shares of
a stock• Round lot: Quantity of 100 shares of stock or
multiples thereof
PFIN4 | CH11
Securities Investor Protection Corporation (SIPC)
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• Nonprofit corporation subject to SEC and congressional oversight• Insures customer accounts against financial
failure of a brokerage firm• Arbitration: Used to settle disputes
between a brokerage firm and its clients
PFIN4 | CH11
Types of Order
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Annual Stockholders’ Reports
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• Made available to stockholders and interested parties that includes:• Financial and descriptive information about a
firm’s operations in the recent past
PFIN4 | CH11
Financial Press
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Financial Press
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Asset Allocation
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• Plan to preserve capital by protecting the portfolio against negative market developments• By dividing a portfolio among different classes
of securities
PFIN4 | CH11
Reasons to Re-evaluate Asset Allocations
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• Change in personal circumstances that changes investment goals
• Proportion of an asset rises or falls that changes target allocation
• Close to reaching certain goal
PFIN4 | CH11
Exhibit 11.6
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Four Model Portfolios
PFIN4 | CH11
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• Investing • Speculating• Investment plan• Prospectus• Bid price• Ask price• Securities and
Exchange Commission• National Association
of Securities Dealers• Bull market
KEY TERMS
• Bear market• Full-service broker• Discount broker• Online broker• Odd lot• Round lot• Securities Investor
Protection Corporation
• Market order• Limit order• Stop-loss
PFIN4 | CH11
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• Dow Jones Industrial Average
• Standard & Poor’s (S&P) indexes
• NYSE index• Dow Jones Wilshire
5000 index• Portfolio• Diversification• Asset allocation
KEY TERMS
PFIN4 | CH11
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SUMMARY
• Investing is viewed as a process of purchasing securities wherein stability of value and level of return are somewhat predictable
• Each market under the securities market provides a mechanism for bringing the buyers and sellers of securities together
• There are different types of market under the securities market and making transactions in each market is simple
PFIN4 | CH11