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Chapter Twenty
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Chapter Twenty

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  1. Chapter Twenty Understanding Personal Finances and Investments 20 | 1

  2. Learning Objectives • Explain why you should manage your personal finances and develop a personal investment program • Describe how the factors of safety, risk, income, growth, and liquidity affect your investment program • Understand how securities are bought and sold • Recognize how you can reduce investment risk and increase investment returns • Identify the advantages and disadvantages of savings accounts, bonds, stocks, mutual funds, and real estate investments • Describe high-risk investment techniques • Use financial information to evaluate investment alternatives 20 | 2

  3. Managing Your Personal Finances • Be familiar with the three steps to Managing Your Personal Finances • DefinePersonal Budget • What are warning signs your credit card spending is excessive? 20 | 3

  4. Managing Your Personal Finances (cont’d) • Discuss Investment Goals andPersonal Investment • What must Goals be? • What are some questions to consider when establishing goals? • What are the Advantages of Long-Term Investing? 20 | 4

  5. Managing Your Personal Finances (cont’d) • What does A Personal Investment Program involve? • Define Financial Planner • What does the textbook suggest you do to help you accumulate money needed to fund an investment plan? 20 | 5

  6. Important Factors in Personal Investment • Be familiar with the factors you must consider when matching potential investments to goals • Safety and Risk • Investment Income • Investment Growth • Investment Liquidity • Be prepared to discuss the textbook’s recommendations about managing investments during a financial crisis 20 | 6

  7. How Securities Are Bought and Sold • Know how Securitiesare generally bought and sold • Define • Primary Market • Secondary Market • Account Executive • Full-Service Broker • Discount Broker • When choosing an account executive, what problems may arise? 20 | 7

  8. How Securities Are Bought and Sold (cont’d) • Be prepared to go through the steps involved in a typical stock transaction on the NYSE • Know the difference between a Market Order and a Limit Order • What are Commissions? • How do commissions vary between different brokerage firms? 20 | 8

  9. Regulation of Securities Trading • What is a Regulatory Pyramid? • Be prepared to discuss its Four Levels 20 | 9

  10. Factors That Can Improve Your Investment Decisions • What variables will affect • How you manage your Portfolio • Your personalized Asset Allocation • Define • Asset allocation • The time factor • Age • Know which investments are risky and which are low-risk • What is Your Role in the investment process? 20 | 10

  11. Traditional Investment Alternatives • Know the advantagesand disadvantagesof investing in • Bank Accounts • Corporate Bonds • Convertible Bonds • Government bonds • Treasury Bills • Treasury Notes • Treasury Inflation-Protected Securities (TIPS) • Treasury Bonds • Savings Bonds (EE bonds) • Municipal Bonds 20 | 11

  12. Traditional Investment Alternatives (cont’d) • Be able to compare investing in different types of stock • Common Stock • Stock Dividend • Dividend Payments • Capital Gain • Market Value • Stock Splits • Preferred Stock • Cumulative Preferred Stock • Convertible Preferred Stock 20 | 12

  13. Mutual Funds • Define Mutual Funds and Exchange Traded Funds • Closed-End Funds • Open-End Funds • Exchange-Traded Fund • Be able to define and calculate Net Asset Value 20 | 13

  14. Mutual Funds (cont’d) • Define • Load Funds • No-Load Funds • Yearly Management Fee • Managed Funds • Index Funds • Family of Funds 20 | 14

  15. Mutual Funds (cont’d) • Be familiar with Types of Mutual Fund Investments • Aggressive growth stock funds • Global stock funds • Growth stock funds • High-yield (junk) bond funds • Income stock funds • Index funds • Lifecycle funds • Long-term U.S. bond funds • Regional funds • Sector stock funds • Small-cap stock funds 20 | 15

  16. Real Estate • What are the Advantagesand Disadvantagesof investing in Real Estate? • Be prepared to discuss the Real Estate Checklist in your textbook 20 | 16

  17. High-Risk Investment Techniques • Define • Buying Long • Selling Short • Buying Stock on Margin • Margin Requirement • Be familiar with high-risk investment choices • Stock options • Derivatives • Commodities • Precious metals • Gemstones • Coins • Antiques and collectibles 20 | 17

  18. Sources of Financial Information • Discuss Sources of Financial Information • The Internet • Newspaper Coverage • Professional Advisory Services • Brokerage Firm Analysts’ Reports • Business Periodicals • Corporate Reports • What are Security Averages? 20 | 18