Investments Notes

Use the PDF documents Fundamentals of Investing and 5 Stages of Investing to complete
these notes. Then, use your notes to complete the Investments Mini-Quiz on Edmodo.
Investments
Definition

2 Reasons NOT to use

investments for shortterm goals
Benefits of Investments
How investments are
assets
What investments are
used for

assets purchased with the goal of

providing additional income from the asset itself but with the risk
of loss
1. Unlike insured savings tools, investments are not secure
2. Investments are less liquid than savings tools
They help build your net worth because they have the potential
to earn higher returns than savings tools
They have monetary value
to pay for longterm goals and expenses
Vocabulary

Return

is the profit or income generated by saving and investing

Risk

is the chance of loss from an event that cannot

be entirely controlled
is the possibility that an investment will fail to pay the expected
return or fail to pay a return at all
the total return expressed as a percentage of the amount of
money saved
is the rise in the general level of prices

Investment Risk
Rate of Return
Inflation
Inflation Risk

Investment Philosophy
Portfolio Diversification
Tax-advantaged
investments

is the danger that money wont be worth as much in the future as

it is
today
an individuals general approach to investment risk
Reduces your risk by spreading money among a wide array of
investments
structured with tax benefits to investors in mind
Types of Investments

Bonds

is a form of lending to a company or the government

Stocks use terms

stockholder, dividend, and
capital gain

Stock- is a share of ownership in a company

Stockholder- the owner of the stock
Dividend- which is the share of profits distributed in cash
Capital Gain- unearned income received from the sale of an asset
above its purchase price
can include ownership of residential or commercial property or
land as
well as the rights accompanying that land

Real Estate

Speculative Investments

have very high levels of investment risk

Mutual Funds use term

diversified portfolio

is created when a company combines the funds of many different

investors and then invests that money in
a diversified portfolio of investments
is a type of mutual fund that was designed to reduce fees by
investing in the stocks and bonds that make
up an index
Lending VS Owning

Index Funds

Investments where you

lend money
Investments you own

Bonds

Benefits of lending

Increasing potential for higher returns

Disadvantages of lending

Returns in the form of interest

Benefits of owning

you have greater investment risk

Disadvantages of owning

your returns and level of investment risk are lower

Stocks, real estate

Investment Philosophies
Conservative

Moderate

Aggressive

Stock Exchange
Discount Brokerage Firm

Fees associated with

Discount Brokerage Firms
Full Service Brokerage
Firm
Fees associated with Full
Service Brokerage Firms

Above average degree of current income with a modest

commitment to equities for principal growth Very low risk
portfolio
Equal emphasis on income and growth of principal, although
principal growth may not be sufficient to preserve purchasing
power
Complete emphasis on capital appreciation. Income is of no
consideration. Returns well in excess of inflation are desired over
the long term
Purchasing Investments
provides an organized, central service to buy and sell stocks,
bonds, and other investments that are traded
provides limited services
only completes orders you give them to buy and sell investments;
they do not provide you with advice as to which investments to
buy and sell
usually charge lower fees and/or commissions than fullservice
brokerage firms
offer you investment transactions as well as investment advice
and a financial advisor
Financial Advisor fees
Investing for Retirement

How the government &

employers help
Employer-sponsored

created investment plans specifically for retirement

plans are called a 401(k) and 403(b)

plans
Personal retirement
accounts

plans that offer tax benefits without employer sponsorship

5 Stages of Investing

Step 1 Put-and-take
Accounts
Step 2 Beginning to
Invest
Step 3 Systematic
Investing
Step 4 Strategic
Investing

Step 5 Speculative
Investing

This holds the money that you're going to need immediately plus
a little padding for emergencies
These first investments should be low-risk things that you're not
very likely
to lose money on
this is a commitment to invest a set dollar amount every pay
period, usually in stocks, mutual funds, or annuities
When you have extra money above and beyond those, you can
begin strategic investing, which is managing your portfolio with
an eye on balancing out losses and gains in different
commodities
involves the highest risk of all of the other steps, but it's also the
stage at
which you stand to gain the most amount of money