FIN 1001- CH.13 Notes - CH.13: \"Investing Fundamentals\" Topics: Company types, Equity capital, The PDF

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CH.13: "Investing Fundamentals"
Topics: Company types, Equity capital, The fed gov't, ETC....

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FIN 1001-01: Financial Choices in Life

Prof. William Stevenson

FIN 1001 | CH.13: “Investing Fundamentals” READING NOTES ๏ A growth company generally pays little or no dividend. ! ๏ Other than length of time invested, another aspect that significantly impacts future value is rate of return.

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๏ There is a risk that the financial return on an investment will NOT keep pace w/ the inflation rate. !

๏ Inflation risk is when money invested today won’t buy as much in the future. ! ๏ An example of a more liquid investment is checking & savings account.

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๏ Among other factors, a person’s priorities, age, & values affect his/her investment goals.

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๏ A bad choice when investing for investment income is just any common stock. ๏ Speculative Investment: a high-risk investment made in the hope of earning a relatively large profit in a short time.

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๏ Since 1926 stocks have returned approximately 5%, while bonds have returned about 10% during this same time. !

‣ FALSE ! ๏ Company types w/ potential dividends: ! ‣ Growth company = typically NO dividend ! ‣ Non-growth company = better chance of receiving a dividend

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๏ Asset allocation (or Diversification): the process of spreading your assets among several different types of investments.

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๏ Certificates of deposit, mutual funds, & government bonds are NOT considered liquid.

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๏ Equity Capital: money that a business obtains from its owners/shareholders/ investors/stockholders.

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FIN 1001-01: Financial Choices in Life

Prof. William Stevenson

๏ When looking at investment you should first ask yourself “what’s important to you & what do you value?” !

๏ Real estate s considered to have a low liquidity factor. ! ๏ For investment income, corporate bonds, preferred stocks, & municipal bonds would be good choices. !

๏ Monitoring: is the process of keeping track of your investments & following their progress.

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๏ Since 1926, stocks have had positive gains more often than they have lost money. ๏ Tax consequences affect many areas of investing including dividends, interest, & rental income.

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๏ The internet is a resource essential for up-to-date investment information & investment research.

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๏ Government bonds are considered a(n) high safety & low risk investment.

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๏ Many radio & television stations broadcast investments & economic information as part of their regular news programs.

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๏ After making your investments, it is crucial to monitor their activity.

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๏ Taxes can affect the following areas of investing: ! ‣ Interest ! ‣ Dividends ! ‣ Rental Income ! ๏ The Federal Government requires the release of the prospectus for corporations selling new securities.

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๏ Often listened to in a car and watched at home, radio & television can be good sources to gather information on investments. !

๏ Standard and Poor's Stock Reports provide up-to-date information on corporations and include an area of analysis & commentary regarding each stock.

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๏ When selling new securities, corporations must release all information regarding the investment in a document known as a prospectus.

๏ Morningstar Investment Reports track thousands of: ! 2

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FIN 1001-01: Financial Choices in Life

Prof. William Stevenson

‣ Corporate stocks & issue monthly reports ! ‣ Mutual funds & issue monthly reports

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๏ EXAMPLE of a measurable & specific goal: ! ‣ “I want to make $300 quarterly for the next 3 years.”

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๏ In times of financial crisis, consumers should: ! ‣ Reduce spending, ‣ Consider converting investments to cash, ‣ Know what they owe ! ๏ Useful investment goals are written, specific, measurable.

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๏ The rate of return can vary in percentage, yet every percent greater makes a significant impact on future value.

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๏ The risk associated w/ bad news that a company may bring to the public is the risk in decreased value/worth/safety.

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๏ One type of risk that investors in stock take is a decrease in value. ! ๏ Consumer credit payments should be less than 20 percent of net income. ! ๏ Being concerned about stocks losing value is a sign of risk factor. ! ๏ Short-term investment goals will be accomplished in one year or less. ! ๏ Bonds carry interest rate risk - when interest rates increase the value of the bond decreases. !

๏ If interest rates decrease, the value of bonds increase. ! ๏ Business failure risk can be caused by bad corporate management or unsuccessful products. !

๏ Market risk can cause price fluctuations on investments due to political activity. ! ๏ U.S Gov’t bond has the highest level of safety. ! ๏ Common stock has the greatest opportunity for growth.

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