Chapter 2 - 2-1Learning ObjectivesDont sell yourself short....

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Unformatted text preview: 2-1Learning ObjectivesDont sell yourself short. Instead, learn about these key investment subjects:1. The importance of an investment policy statement.2. The various types of securities brokers and brokerage accounts.3. How to calculate initial and maintenance margin.4. The workings of short sales.2-2Investment OverviewFundamental Question: Why invest at all?We invest today to have more tomorrow.Investment is simply deferred consumption.We choose to wait because we want more to spend later.Investors have their own investment objectives and strategiesThe Investment Policy Statement (IPS) Designed to reflect your objectives and strategiesTwo partsObjectivesConstraints2-3Objectives: Risk and ReturnIn formulating investment objectives, the individual must balance return objectives with risk tolerance.Investors must think about risk and return.Investors must think about how much risk they can handle.Your risk tolerance is affected by Your ability to take risk Your willingness to take risk2-4Investor ConstraintsResources.What is the minimum sum needed? What are the associated costs?Horizon.When do you need the money?Liquidity.How high is the possibility that you need to sell the asset quickly?Taxes.Which tax bracket are you in?Special circumstances.Does your company provide any incentive? What are your regulatory and legal restrictions?2-5Investment Strategies and PoliciesInvestment management.Should you manage your investments yourself?Market timing.Should you try to buy and sell in anticipation of the future direction of the market?Asset allocation.How should you distribute your investment funds across the different classes of assets?Security selection.Within each class, which specific securities should you buy?2-6Choosing a Broker/Advisor, I.Brokers are now divided into three groups:1.full-service brokers2.discount brokers3.deep-discount brokersThese three groups can be distinguished by the level of service provided, as well as the level of commissions charged.As the brokerage industry becomes more competitive, the differences among broker types continues to blur.2-7Choosing a Broker/Advisor, II.Another important change is the rapid growth of online brokers, also known as e-brokersor cyberbrokers.Online investing has really changed the brokerage industry. slashing brokerage commissionsproviding investment informationCustomers place buy and sell orders over the Internet2-8Security Investors Protection CorporationSecurity Investors Protection Corporation (SIPC):Insurance fund covering investors brokerage accounts when member firms go bankrupt or experience financial difficulties....
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This note was uploaded on 11/18/2011 for the course FIN 355 taught by Professor Phsiao during the Fall '08 term at S.F. State.

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Chapter 2 - 2-1Learning ObjectivesDont sell yourself short....

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