Investments

1/12/2022

*Probably buy the textbook*

1/14/2022

Ch.1 – The Investment Environment

 Portfolio- a collection of different investments

 Return- any increase in value
 Securities- financial assets
 Liquidity- the ability to buy and sell
 Direct Investment – investor directly acquires ownership or claim
 Indirect Investment – professional investment manager helps to indirectly acquire ownership
 Debt – funds lended in exchange for interest income
 Equity – ongoing ownership in a business or property
 Derivative Securities – derive value from an underlying asset
 Risk -Uncertainty surrounding the return that a particular investment will generate
 Diversification – holding different types of assets in an investment portfolio

1/17/2022

Investments

Investments and the Investment Process

 Households, Governments, and Businesses create supply and demand for bonds
o Households are typically the ones supplying funds

Bringing together suppliers and Demanders of Funds

 Financial markets – typically assisted by an intermediary such as brokers and dealers

 Financial Institutions – Organizations that pool the resources of suppliers of funds and use those
funds to make loans to and invest in securities issued by demands of funds

Types of Investors

 Individual Investors – individuals concentrate on earning a return on idle funds building a

source of retirement income
 Institutional Investors – investment professionals who earn their living by managing other
people’s money
Types of Investments
 Short term – less than a year
 Common Stock – represents an ownership of a corporation
 Fixed income securities – bonds are long-term fixed-income securities issued by corporations
and governments
 Mutual Funds – pooling the funds of many different investors
  Exchange-traded funds: ETF – like mutual funds except etf shares trade on exchanges so
investors can buy and sell them at any time.
 Hedge Funds – funds that pool resources from different investors, but usually have higher
minimum investments with higher risk. Low regulation
 Derivatives – value comes from the underlying asset
 Options - specified price at a later date for a fee
 Futures – legal contract to buy at an agreed price in the future at a specified date
 Tax-advantaged investments – provide after-tax returns by reducing taxes that investors must pay
 Real estate – homes, land etc
 Tangibles - ,…
Making your investment Plan
 Write an Investment policy statement
 Summarize current situation
 List current assets
 Current income and spending
 Define why you are investing and what your risk level is
 Specify investment goals
 Investment goals – financial objectives you wish to achieve
 Articulate your investment philosophy
 Risk tolerance
 Set investment selection guidelines
 Assign responsibility for selecting and monitoring investments
 Consider personal taxes
 Consider types of investments, income etc
 Capital Asset
 Capital gain
 Capital Loss
 Investing over the life cycle
 Investing over the business cycle
1/21/2022
Making your investment plan
 Always consider your personal taxes
 Investments and taxes
 Tax planning: looking at your current projected earnings and developing strategies to defer
and minimize the level of taxes
 Tax plan should achieve maximum after-tax returns for an acceptable level of risk
 Tax-advantaged Retirement savings plan
 Allows taxes to be deferred until withdrawn in the future
 Drops taxable income
 401k will have many companies match up to a certain percentage
 IRA, you choose your investments
1/24/2022
Making Your Investment Plan
 Investing Over the Business Cycle
 Investments are affected by conditions in the U.S. economy
 The business cycle reflects the current status of several common economic indicators: GDP,
production, disposable income, unemployment rate.
 A strong economy is reflected in an expanding business cycle
 Interest rates and bond prices move in opposite directions
End-beg/Beg