CHAPTER 11: INVESTMENT PLANNING

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CHAPTER 11INVESTMENT PLANNING
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Different Ways to Invest

• Common Stock
• Bonds
• Preferreds and Convertibles
• Mutual Funds
• Real Estate
• Commodities, Financial Futures, and Options

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Securities Markets

• Where financial instruments are traded.
• Capital marketwhere long-term securities (those
  with maturities greater than 1 year) are traded.
• Money marketwhere low-risk, short-term
  securities (those with maturities less than 1
  year) are traded.

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• Primary marketfor new issues which are available
  for the very first time. The issuing company gets
  the proceeds.

• Secondary marketfor trading previously issued
  securities. Trading is done between investors
  issuing company gets nothing.

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Regulating the Securities Markets

• Federal and state laws regulate the sale of
  securities.
• Purpose is to provide for adequate and accurate
  disclosure of financial information.
• Securities and Exchange Commission (SEC) is the
  agency in charge of administering federal
  securities laws.

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Market Trends

• Bull marketgenerally rising securities prices
  for an extended period of time.
• Reflects investor optimism.
• Associated with favorable economy.
• Bear marketgenerally falling securities prices
  for an extended period of time.
• Reflects investor pessimism.
• Associated with economic downturn.

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Executing Trades

• Market orders generally take less than 2 minutes!
• Investor must first establish account with
  broker.
• Trades can be executed by phone, at the brokerage
  firm, or online with a PC.

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Types of Orders

• Market ordertrade now at best available price.
• Limit ordertrade when a specified price or
  better is reached investor is seeking
  opportunity.
• Stop-loss ordersell if price drops to certain
  price investor is seeking to limit losses.

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Margin Trading

• Allows investor to purchase securities on credit
  by borrowing part of purchase price from broker.

Increases gains when returns are positive.
Increases losses when returns are negative.
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Short Selling

• Allows investor to sell securities borrowed from
  the broker or broker's accounts.
• Before period is over, investor must buy
  securities to replace those borrowed.

Investor profits if securitys price has declined.
Investor loses if securitys price has increased.
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• To profit from short selling
• not only must the price of the security fall,
  but it must do so within the given time period.
• Double jeopardy!

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Becoming an Informed Investor

• Types of Information to Follow
• Economic developments and current events
• Alternative investment vehicles
• Current interest rates and price quotations
• Personal investment strategies

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Available Investment Information

• Annual Reports
• Financial Press (WSJ and financial magazines)
• Brokerage Reports

• Advisory Services
• Investment Advisors
• On-Line Sources

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Online Investing

• Online services
• Educational material
• Investment tools
• Investment planning

• Research and screening
• Portfolio tracking
• Day trading

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Using the Internet Wisely

• Do your own research.
• Realize that frequent trades mean higher
  transaction costs.
• Dont believe everything you read.
• Avoid online scams.

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Questions to Ask

• Is the stock registered?
• Who is making the sales pitch?
• Is it too good to be true?

Refer to SEC Web site www.sec.gov/consumer/offert
ip.htm
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• A score of 6-10 means your investment goals are
  more immediate, so you should concentrate on
  safer investments that provide regular income
  payments.
• A score of 11-14 suggests a more balanced
  portfolio some income-producing investments and
  some investments that provide greater growth
  opportunities.
• A score of 15-18 means you will need to
  concentrate heavily on growth investments to
  achieve your return objectives.

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THE END