Keownppt chap 11 - PART 4 MANAGING YOUR INVESTMENTS Chapter 11 Investment Basics Learning Objectives Set your goals and be ready to invest Understand

Keownppt chap 11 - PART 4 MANAGING YOUR INVESTMENTS Chapter...

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PART 4: MANAGING YOUR INVESTMENTS Chapter 11 Investment Basics
11-2 Learning Objectives Set your goals and be ready to invest. Understand how taxes affect your investments. Calculate interest rates and real rates of return. Manage risk in your investments. Allocate your assets in the manner that is best for you.
11-3 Investing Versus Speculating When you buy an investment, you put money in an asset that generates a return. Part of that is income: Rent on real estate Dividends on stock Interest on bonds Even if the stock or bond does not pay income now, in the future it may.
11-4 Investing Versus Speculating With speculation, assets don’t generate an income return and their value depends entirely on supply and demand. Examples include: Gold coins Baseball cards Non-income producing real estate Gems Derivative securities
11-5 Investing Versus Speculating Derivative securities derive their value from the value of another asset. Futures - a written contract to buy or sell a commodity in the future. Options - the right to buy or sell an asset at a set price on or before maturity date. Call option – right to buy Put option – right to sell
11-6 Investing Versus Speculating Futures contracts deal with commodities such as oil, soybeans, or corn. It requires the holder to buy or sell the asset, regardless of what happens to its value in the interim. Contract sets a price and a future time at which you will buy or sell the asset. With futures, it is possible to lose more than you invested.
11-7 Investing Versus Speculating Options markets and futures markets are a “zero sum game.” If someone makes money, then someone must lose money. If profits and losses are added up, the total would be zero. Can lose more than invested.
11-8 Setting Investment Goals When you make a plan, you must: Write down your goals and prioritize them. Attach costs to them. Determine when the money for those goals will be needed. Periodically reevaluate your goals.
11-9 Setting Investment Goals Formalize goals into: Short-term – within 1 year Intermediate-term – 1-10 years Long-term – over 10 years
11-10 Setting Investment Goals

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