Before Investing

make sure you’re or have:

• paying bills on time

• paying credit card debt in full without paying an interest rate

• a balanced budget that meets all your needs

• have a liquid or cash emergency savings that is very adequate

• have access to other sources of credit for an emergency

• do you have adequate insurance coverage

• contributing as much as possible to retirement match plan

• willing to sacrifice some consumption for financial investments and later growth

• willing to start small by investing just a little on a regular basis

Common investing goals:

• take an expensive vacation

• buy a vehicle or home

• increase income

• educate a child

• accumulate start-up costs for a business

• build a retirement nest egg

they should help you know what kind of investments you want to make so that you can be motivated

why?

• determine which ones are most and least important

• determine the need for safety or risk with the investments

• determines how much time you have

How to increase amount to save

(where to get money to invest )

• set up automatic pay yourself firs plan

• save net raise after income taxes to use for investments

• save the money you get from a raise

  • invest any found money

• tax-refunds, bonuses, gifts and inheritances

  • save the money and use only for investments

• when a debt is repaid, continue to take out debt payments but put them into an investment account,

• go on budget diet for one month each year to invest

• take on a second job

Savings vs. Investing

• savings is an accumulation of excess funds

  • remember emergency savings is important

• investing is putting money to work so that it makes more money

  • has a lot lot more risk

Types of investments

• securities- any type of investment vehicle

  • stocks

    • dividends is the return

  • bonds

    • interest is the return

  • mutual funds

  • property

    • rent is the return

    • risk/lost is

• portfolio- a collection of investments

investments in time

• long-term

  • has very very low risk

  • in scale, very low return

  • savings and checking accounts

• intermediate

• short term

total return

• capital gain vs. loss

  • only occurs when you sell the investment

• rate of return is express as a percentage

• real rate of return means return minus tax and inflation %

  • (1-.22) * .08 =

risk premium

• the difference between the expected return and the current price to buy

• also a %

• e.g. return is 8%, and 2% on a 10 yr T bond, risk premium is 6%]

investment philosophy

conservative

• preservation of capital

• very close ties with security, stability, don’t mind low growth

moderate

• accept risk as a part of investment

• will invest what they are ok losing if they have to

• 
  

aggressive

• risk seeker

• 
  

investing approaches

• active

  • can spend time managing the investments

    • e.g. rent house and you manage it rather than someone you hire to do it…deal with renters,

• passive

  • don’t want to have to maintain it

bonds vs. Equity

• bonds = loans

  • e.g. a city buys a school

• equities = ownerships

fixed maturity

fixed income

Finacial Advice

both models must be licensed

may need insurance in case you get sued

• fiduciaries (CFP)

  • someone obligated to ask in your best interest without having personal gain

  • even at the cost of themselves

  • will help you financially plan

  • live by the fiduciary standard

  • fee schedule is a % fee of your AUMs (assets under management)

  • e.g. edward jones

    • must act as an fiduciary or you get your license taken

• suitability standard

  • when they factor their own well being into their recommendations

  • have conflicts of intersts

  • will hide this by ‘not charnging you anything’

  • e.g. tero price

Types of Risk

Random (unsystematic)

• someone leaves the company, bad weather, company takes too much debt

Solution: diversification

Market (systematic)

• affects the whole economy