FIN 101: week 10
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This 4 page Class Notes was uploaded by Rachel Rusnak on Wednesday May 11, 2016. The Class Notes belongs to FIN 101 at Ball State University taught by Professor Boylan in Summer 2015. Since its upload, it has received 13 views. For similar materials see Personal Finance for Fiscal Wellness in Finance at Ball State University.
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Date Created: 05/11/16
Personal Finance 101 Professor Boylan 1 Chapter 10: Investing. ***on the test*** 1. People will invest in anything they think will raise in price. a. What makes a good investment? i. Limited supply. ii. Increased demand. b. What makes a bad investment? i. Increased supply. ii. Decreased demand. c. We are so in debt that banks will not let us have another/ more credit cards. 2. Savings…is Like a Muscle. a. The more you work it out, the stronger it gets. 3. On Investing… a. You need to be compensated for: i. Time value of money. ii. Risk reward. 4. The Future is Bright? a. Live for today? Or live for the future? i. Sports teams? ii. Cru/ Chi Alpha? iii. Theatre/ dance? iv. Music/ choir? v. Academics/ video games? vi. Spend/ save? 5. Big Difference. a. Good company good investment. 6. What is liquidity? a. The ability of an asset to be converted into cash quickly and without any price discount. = b. Stocks/ mutual funds, bank accounts are liquid because you can sell and get cash easily. 7. How Do I Get Started? a. Pay yourself first. i. Accumulate money by regularly allocating a portion of earning for investing. ii. Take advantage of automatic investment and dividend reinvestment programs. iii. Learn about investment and “pay” trading. iv. Determine financial objectives. 8. Creating an Investment Objective. a. The first step in any investment plan is to have an investment objective. Once that is established you can pick out investments. i. Desired profit/ return. ii. Amount you can invest. iii. Amount you are willing to lose. iv. Time horizon. v. Tolerance for risk. vi. Where you plan to get help picking investments. 9. Investment Objectives? a. Current income. i. Appropriate for retired persona. b. Major Expenditures. Personal Finance 101 Professor Boylan 2 i. College education. ii. Down payment on a home. iii. Start a business. c. Retirement. i. Living comfortably in the “golden years”. d. Growth. e. Shelter from taxes. i. Preserve more of your earnings. 10. Coming Up with the Capital. a. How much money will it take? i. Do you have a lump sum of interest now, or will you systematically save toward your goal? b. Reality… i. Most people do not have a large lump sum to invest. ii. Investing in small amount over time that builds up to something very significant. 11. How Much Money do You Need to Open an Investment Account? a. Fidelity Investments $2,500 b. Charles Schwab $1,000 c. Scottrade $500 12. Smart Failure? a. Ready, fair, aim? i. The biggest issue for most is starting. ii. It is rare that you lose everything. iii. Start with something sensible. iv. Change as needed. 13. The Rick of NOT Investing. a. You lose to inflation. b. You might outlive your money. c. You may not be able to retire/ college/ home. d. You may not be able to leave a legacy. i. Inheritance. ii. Charity. e. Practice with a fake portfolio. i. Invest in only what you understand. 14. Risk and Reward Relationship. a. Rick tolerance. b. Risk premium. c. Expected return and risk. 15. Different Ways to Invest. a. Common stock (equities). i. Represents a share of ownership in a corporation. ii. Greater potential returns with a higher level of risk. iii. Stocks are traded on exchanges all over the world. 1. The largest is the New York Stock Exchange or NYSE. 2. Stocks are identifies by their ticker symbol. iv. 5 Steps to Fix Wall Street. 1. Break up the ‘too big to fail” banks. 2. Publicly commit to end bailouts. 3. Cap leverage at large financial institutions. 4. End speculation in the credit derivatives market. 5. End the revolving door between regulators and banks. b. Bonds (liabilities). i. Represent debt. ii. Provide current income. Personal Finance 101 Professor Boylan 3 iii. Lower level of risk than stocks, with lower expected returns. iv. Bond values inversely related to in prevailing interest rated. v. A bond is a loan and you are the lender. c. Preferred stock and convertibles (equities). i. Equity security that behaves like debt. ii. Company has NO legal obligation to declare dividends. iii. Usually offer a lower interest rate than regular bonds. iv. Convertible into common stock. d. Mutual funds (assets) and... i. Professionally managed portfolio by an investment company. ii. “A set of funds raised from the public and managed by the Investment Fund Manager” via portfolio. iii. +1,000 different types of funds. e. Exchange traded funds (stocks). i. Track a basket or index of securities. f. Real estate (assets). i. Buy a house. ii. Buy rental properties. iii. Develop land. iv. How to “flip” a house. 1. Know the market. 2. Assess the area. 3. Lowball on everything. 4. Have a backup plan. v. Good investment. 1. Homes appreciate about four or five percent a year. 2. Five percent may not seem like that much at first. 3. Stocks appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds. vi. Bad investment. 1. Rich dad/ poor dad calls a home a liability. a. What other investments cost you maintenance, upkeep, taxes, and insurance. b. Some people buy because the house is cute. c. Some people buy because they want to decorate. d. Can be very costly. vii. Basic considerations of investing in real estate. 1. Cash flow and taxes. 2. Appreciate in value. a. Rural near city. b. Suburban. c. Small town. d. Inner city. 3. Use of leverage. a. Borrowed money magnifies returns and loses. g. Cash (assets). i. Some individuals treat cash as something you only need to have on hand for those unexpected expenses. 1. Savings accounts. 2. Certificated of deposit. 3. Money market mutual fuds. 4. Money market accounts. 5. High yield checking accounts. 6. Currency exchange. Personal Finance 101 Professor Boylan 4 h. Art (assets). i. High value art can be a good investment. ii. Artists go in and out of sale. iii. Art can go up by high amounts when rich people are making money. i. Annuity (assets). i. You make an investment in the annuity. ii. Then make payments to you on a future date or series of dates. iii. A steady stream into your account. 16. Asset Allocation- Age. a. The proper mix of assets: Ages Stocks Bonds Cash 20-30 80-90% 0-5% 10-15% 30-45 60-75% 10-30% 10-15% 45-60 45-60% 30-55% 10-15% 60+ 25-40% 50-60% 10-15% 17. Where Can I Trade? a. Full service broker. i. Raymond James, Morgan Stanley, UBS. b. Discount broker. i. Charles Schwab, Vanguard, Bank of America. c. Online. i. AccuTrade, TD Ameritrade, E*Tade, Scottrade. 18. Online Trading. a. Advantages of online trading. b. Finding a good online trading firm
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