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    Financial Markets Section 2: Investing in A Market Economy pgs.324-329

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    Myla Rose Acoba
    This document discusses factors to consider when determining investment objectives and choosing investments, including time horizon, available funds, goals, risk tolerance, desired return, and diversification. It explains that short-term goals require less risky investments while long-term goals allow for more risk. Investors must also consider their income, debts, taxes, and ability to withstand potential losses to properly match investments with objectives.

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    Financial Markets Section 2: Investing in A Market Economy pgs.324-329

    Uploaded by

    Myla Rose Acoba
    63 views9 pages
    This document discusses factors to consider when determining investment objectives and choosing investments, including time horizon, available funds, goals, risk tolerance, desired return, and diversification. It explains that short-term goals require less risky investments while long-term goals allow for more risk. Investors must also consider their income, debts, taxes, and ability to withstand potential losses to properly match investments with objectives.

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    This document discusses factors to consider when determining investment objectives and choosing investments, including time horizon, available funds, goals, risk tolerance, desired return, and diversification. It explains that short-term goals require less risky investments while long-term goals allow for more risk. Investors must also consider their income, debts, taxes, and ability to withstand potential losses to properly match investments with objectives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    63 views9 pages

    Financial Markets Section 2: Investing in A Market Economy pgs.324-329

    Uploaded by

    Myla Rose Acoba
    This document discusses factors to consider when determining investment objectives and choosing investments, including time horizon, available funds, goals, risk tolerance, desired return, and diversification. It explains that short-term goals require less risky investments while long-term goals allow for more risk. Investors must also consider their income, debts, taxes, and ability to withstand potential losses to properly match investments with objectives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 9

    Chapter 11:

    Financial Markets
    Section 2:
    Investing in a Market Economy
    pgs.324-329
    Why Are You Investing?
    • There are two types of
    investing: personal &
    economic.
    • This chapter uses the word
    invest as a quick way to refer
    to personal investing—which
    is, in effect, saving.
    • There is a number of assets
    you can own, but how do you
    determine which is, or are,
    right for you?
    • You must decide why you are
    investing, this is your
    investment objective, or a
    financial goal that an investor
    uses to determine if an
    investment is appropriate.
    Goals
    1. Saving money for
    retirement
    2. Down payment on a
    house
    3. Down payment on an
    automobile
    4. College tuition
    5. Vacation
    • Your goal helps you to
    determine the right
    investments.
    Investment Objectives
    • Two issues play a major role
    in determining which
    investment objectives.
    • The 1st is Time. For example,
    is this a short-term financial
    goal such as saving for a
    vacation, or a long-term
    financial goal, such as
    saving for retirement?
    • The 2nd is income. Example:
    how much money do you
    have available to save after
    meeting current expenses?
    More Questions
    • Will your income change in the
    future?
    • Is there money available for
    emergencies? You should have
    three months bills saved in case
    of emergencies.
    • Do you have any outstanding
    debts? Paying off debts is an
    important first step to investing.
    Generally, the interest you pay on
    debts, such as credit cards, is
    higher than what you earn
    through investments.
    • Are you paying taxes on time? Tax
    considerations are most
    important for investors with
    higher incomes who are subject
    to higher tax rates.
    Risk and Return
    • Once investors have
    decided their financial
    objectives, there are
    two other related issues
    they might consider—
    risk and return.
    • Risk is the possibility for
    loss on an investment,
    and return is the profit
    or loss made on an
    investment.
    Diversification
    • Most investments carry
    some possibility of losing
    part of the money invested.
    • Return may refer to the
    interest paid on a savings
    account or CD or the
    increase in value of stock
    over time.
    • Most investors try to
    balance risk and return
    through diversification, the
    practice of distributing
    investments among
    different financial assets to
    maximize return and limit
    risk.
    What Kind of Risk Are
    You Willing to Take?
    • Savings deposits, CDs, bonds that
    are backed by the U.S.
    government are all almost risk-
    free.
    • A big risk that investors face, is
    the loss of purchasing power of
    money invested due to inflation.
    • That is why many financial
    advisers warn against investing
    everything in safe investments
    that pay a guaranteed rate of
    interest that may not keep up
    with inflation.
    • Other investments, such as stocks
    & corporate bonds, carry a higher
    degree of risk b/c the return
    depends on how profitable the
    company is.
    What Kind of Return Do You Want?
    • Risk and return are directly
    related—the greater the
    possible return, the higher the
    risk that the investment will
    lose value.
    • People who are investing for
    retirement over a period of 20
    to 30 years may be willing to
    take more risk.
    • People with less time and less
    income to invest might not be
    willing to risk possible losses.
    • Diversification is the most
    common way for investors to
    maximize their returns and
    limit their risk.

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