Investing for Your Future
Personal Finance Chapter 11
Lesson 11.1 – Investing Fundamentals
Lesson 11.2 – Exploring Investment Options
Stages of Investing
Goals for investing vary person to person
As excess income grows, you can
progress through different stages of
investing
Five stages of investing:
Put-and Take Account
Beginning Investing
Systematic Investing
Strategic Investing
Speculative Investing
Stage 1
• Put-and-Take Account
• First savings account is a temporary
account
• Purpose is to pay for short-term needs
with enough left over to cover unexpected
expenses
• Many financial advisers recommend that
you have three to six months net pay set
aside for this type of fund
Stage 2
• Beginning investing
• Investing is the use of savings to earn a
financial return
• Investing begins when your savings are
permanent rather than temporary
• Initial investment should be conservative
and low-risk
• Don’t have a lot of money to invest
Stage 3
• Systematic Investing
• After you become comfortable with your
beginning investments, you can start
investing on a regular and planned basis
• Regularly set aside a certain amount each
month for investing
• Goals are long-range – investing for a
financially secure retirement
Stage 4
• Strategic Investing
– The careful management of investment
alternatives to maximize growth of your
portfolio over the next 5-10 years
• You invest in different types of securities to
try to maximize your returns
Stage 5
• Speculative Investing
• Occurs when you are investing regularly
but still have money available to take
bigger risks
• Can make – or lose – a large amount of
money in a short period of time
• Many investors never choose to speculate
Reasons for Investing
• Investing Helps Beat Inflation
– When prices are rising rapidly, you may not be
able to earn a return that beats inflation
• Investing Increases Wealth
– Over the long run, investments earn higher
profits than savings do
• Investing is Fun and Challenging
Risk and Return
• All types of investing involve some degree
of risk
• Diversification is one way to reduce risk
– Spread the risk among many types of
investments
• Types of Risk
– Interest-rate Risk
– Political Risk
– Market Risk
– Company or Industry Risk
Investment Strategies
• Criteria for Choosing an Investment
1. Safety
2. High liquidity
3. High dividends or interest
4. Growth in value that exceeds the inflation
rate
5. Reasonable purchase price
6. Tax benefits
Wise Investment Practices
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Define Your Financial Goals
Go Slowly
Follow Through
Keep Good Records
Seek Good Investment Advice
Keep Investment Knowledge Current
Know Your Limits
Assignment
• Chapter 11 Worksheet – Due Wednesday
• If you want some extra credit points, you can
do the questions for Chapter 11 on page 327.
They must be placed in my drop box at the
beginning of class on Wednesday.
• Start thinking about companies you might be
interested in investing in.
Sources of Financial Information
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Newspapers
Investor Services and Newsletters
Financial Magazines
Brokers
Financial Advisers
Annual Reports and Financial Statements
Online Investor Education
Investment Options
• Investments can be put into different
groups according to their degree of risk
and expected return:
1. Low Risk/Low-to Medium Return
2. Medium Risk/Medium Return
3. High Risk/High Return
Low Risk/Low-to-Medium Return
• Corporate and Municipal Bonds
– Interest usually paid every six months
– Principal repaid at maturity
– Interest on gov’t bonds usually tax-free
• U.S. Government Savings Bonds
– Series EE Savings Bond (discount bond)
– Series HH Savings Bond (exchange for EE
Bonds)
• Treasury Securities
– T-bills
– Treasury Notes
– Treasury Bonds
Medium Risk/Medium Return
• Mutual Funds
– Large, professionally managed group of
investments
– Fastest growing segment of financial services
industry
• Annuities
– Sold by insurance companies
• Self-Managed Retirement Accounts
– 401(k), 403(b), IRA, Keogh Plan
• Real Estate
High Risk/High Return
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Stocks
Futures
Options
Penny Stocks
Collectibles