STOCKS BONDS MUTUAL FUNDS PF-GG
(PAGE 1 OF 8)
GENERAL INVESTMENT GOALS, PRINCIPLES,
AND REASONS WHY PEOPLE INVEST
1. Make Money
1. Income from interest, dividends, rents, etc.
2. Increase in value (capital gains)
2. Financial Security and Independence (Live off of your Investments)
3. Diversification (“Do not put all of your eggs in one basket”)
4. Liquidity (Ability to convert to cash with little or no loss of principal)
5. Tax Benefits (Tax avoidance, not tax evasion)
6. Retirement (It’s never too early to start)
7. Satisfaction and Enjoyment
8. Your Personal Risk Tolerance Level (Know and Follow)
9. Specific Purpose (New home, car, education fund, early retirement, world cruise, etc.)
ACQUIRING FUNDS TO INVEST
1. Strict budget and savings plan 8. When you pay off a loan, keep making
payments to yourself
2. Part-time job
9. If you get a raise--save it
3. Have spouse work
10. Sell unused items
4. Use your tax refund
11. Participate in plans at your work
5. Inherit (if lucky) (very important)
6. Borrow (be careful) 12. Buy permanent life insurance (for
7. Payroll deduction
REAL ESTATE OPTIONS COMMODITIES
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INVESTMENTS PF-GG (PAGE 2 OF 8)
MAJOR INVESTMENT VEHICLES
1. Common Stock (Distributes earnings as dividends, represents ownership, usually greater
chance of value increase)
2. Preferred Stock (Preferred as to dividends which are fixed and assets in event of
liquidation, represents ownership, usually less risk than common)
3. Bonds (Debt instruments, distributes earnings as interest, long term, preferred status in
liquidation, usually lower risk than stocks)
a. U.S. Government (Safest of all and issues the most bonds)
b. Municipals (Issued by states, cities, counties, etc., exempt from federal income tax and
in many cases state income tax, may be “insured.”)
c. Corporate (Issued by large corporations, higher interest and higher risk than “a.” and
d. See page #8 for “Risk Ratings”
4. Mutual Funds
5. Real Estate
6. Limited Partnerships
7. Small Business
8. Annuities (Issued by life insurance companies)
9. Options: Rights, Warrants, Puts and Calls (May be risky)
(Maximum Loss: Amount you invest plus commission)
10. Commodities and Financial Futures (Very High Risk, Losses Are Unlimited)
11. Tangibles (Gold and other precious metals, strategic metals, gemstones and collectibles)
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INVESTMENTS PF-GG (PAGE 3 OF 8)
REAL ESTATE AS AN INVESTMENT
(i.e. Rental House or Duplex)
1. Significant tax benefits -- can deduct all 1. Usually requires down payment
expenses and depreciation
2. Management responsibilities
2. Leverage (using borrowed money, may be
nothing down) 3. Time and hassle
3. Making payments with someone else’s 4. Possible Negative cash flow
5. Damage risk
4. Possible value increase
6. Vacancies (you may have to make
5. Value retention (may go down but not to payments)
7. Equity tied up (not as liquid as other
6. Building equity investments.
7. Later can trade-up or sell and buy larger
NOTE: FOR RENTAL UNITS BE SURE TO:
1. Use a Written Application Form, also known as Renters Information Sheet (and check the people
out before renting to them.)
2. Use a Written Rental/Lease Agreement
3. Require Some Type of Security and Cleaning Deposit as well as first months rent.
4. State the Deposit is Forfeited if they do not stay at least six months.
R.E.I.T (REAL ESTATE INVESTMENT TRUST)
1. Many benefits of investing in real estate without the hassle and responsibility.
2. Similar to mutual funds only they buy real estate or real estate mortgages instead of stocks and bonds.
3. Pooled funds, professional management, and diversity.
4. Must pay out 90% to 95% of net profit as dividends.
5. Most are traded on the major exchanges like stocks (so you have liquidity)
6. Small and large investors buy these to gain access to the real estate market.
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INVESTMENTS PF-GG (PAGE 4 OF 8)
I. Why are Mutual Funds the most popular investment vehicle in America today?
II. Characteristics and Advantages VII. Types of Funds
1. Pooled funds 1. Growth
2. Professional management 2. Aggressive Growth
3. Wide diversification 3. Income
4. Some require only $50.00 to open 4. Corporate Bond
5. Most allow monthly contributions 5. Balanced
6. Many allow “exchanging” within the 6. Tax Exempt
family of funds 7. Asset Allocation
7. Most allow automatic reinvestment 8. Money Market
of dividends and capital gains (Be 9. International vs. Global
sure to) 10. Sector or Specialty
8. Some allow systematic withdrawal 11. U.S. Government Securities
9. Most are liquid; Can receive 12. Real Estate
proceeds if sell within two to three 13. High Income
days 14. Long-Term Growth
10. Many types to choose from 15. Over the Counter
11. Some have check writing features 16. Gold and Precious Metals
(MMMF’s) 17. Variable Annuity
12. Many “Ratings” and “Rankings” 18. Mortgage Backed
available 19. Large Cap
13. Most may be used as I.R.A.s 20. Medium Cap
14. Some low or no sales charge 21. Small Cap
22. Emerging Markets
III. “Loads” (Sales Charge) many types: 23. Social Conscience
1. Full load (Maximum 8 1/2 %) 24. Junk Bond
2. Low load 25. Contra Funds
3. Combination load – “2 + 1” 26. Multi-Funds
(i.e., 2% when buy; 1% when sell) 27. Index Funds
4. No load 28. Stable Value Funds (Principal
5. Back-End load Guaranteed)
6. Reducing Back-End load 29. Value Funds (Low PE Ratio,
High Dividends, Basic Industries)
IV. Primary Rating Services: 30. Hedge Funds
Morning Star and Lipper 31. Venture Capital/Private Equity
Morningstar.com (See web site) Funds
V. Open-End vs. Closed-End Funds (See
VI. What is N.A.V? (See Page #8)
1. How is it calculated?
2. What is it used for?
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INVESTMENTS PF-GG (PAGE 5 OF 8)
S.I.P.C. (SECURITIES INVESTOR PROTECTION CORP.)
1. Securities in your account: “Protected” to $500,000.
2. Cash in your account “Protected” to $100,000. (Total combined coverage is $500,000.)
3. Protects you if the brokerage company fails. Does NOT insure that you will not lose money in the
a. Margie inherits $10,000 and puts $6,000 of it into a brokerage account pending a buy
b. Lance sold 100 shares of IBM stock three days ago.
c. Susan bought 30 shares of Google 10 days ago and is waiting for her stock certificate.
d. Assume the brokerage firm fails on this day. Explain each of their situations.
HOW DO YOU KNOW WHICH STOCKS TO BUY?
This depends on many factors such as:
1. Your investment goals 4. Your risk tolerance level
(Income, Growth, etc.) 5. Investment time frame
2. Amount of money you have 6. How much time can you spend managing
3. Your knowledge and experience level your portfolio?
SOURCES OF INVESTMENT INFORMATION INCLUDE:
1. Internet (many Web Sites available)
2. Stock brokers (large full-service brokers have well-staffed analytical departments)
3. Professional advisory services, such as Value Line
4. The media--magazines, newspapers, radio, TV, etc.
5. The company itself, quarterly and annual reports to stockholders, newsletters, etc.
6. Family, friends, neighbors, work associates
7. Your own “gut” feelings
8. Common sense
9. “Hot Tips” and rumors. (Be careful!)
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INVESTMENTS PF-GG (PAGE 6 OF 8)
THE BULLS AND THE BEARS MAKE MONEY, AND THE PIGS GET SLAUGHTERED.
“The Market Doesn’t Know You . . .”
It is impossible to “Time the Market”
WHEN TO SELL A STOCK
(What Factors are Involved?)
A. Follow fundamentals.
B. Watch the dividend (Why?)
C. Set a target (Why?)
D. “Do you need the money?”
E. “I always believe in selling when they are up.”
F. What is happening with the stock?
G. How much do you know about it?
H. How good is your source of information?
I. What is happening within the industry and the economy?
WHAT FACTORS MAKE THE WHOLE STOCK MARKET FLUCTUATE?
1. Economy: Interest rates, inflation, consumer spending and saving, gross domestic product,
unemployment, federal debt, trade deficit, etc.
2. Seasonal cycles and natural disasters.
3. Politics, government actions, regulations, etc.
4. National and international crisis.
5. Emotion, fear, panic, greed, uncertainty.
6. Computerized programmed trading (some safeguards now built in).
7. What is happening on other international stock markets.
8. Total volume and large institutional trading.
9. Past, present and future (The six month theory).
WHAT FACTORS CAUSE ONE COMPANY’S STOCK TO FLUCTUATE?
1. Growth, sales, profits (or losses), dividends, etc.
2. Management (#1 reason for company failures is poor management).
3. New product or discovery.
4. Mergers or buy-outs.
5. Foreign competition.
6. Government policies and regulations.
7. Number of shares outstanding.
8. Adverse publicity (Product recall, law suit, etc.).
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INVESTMENTS PF-GG (PAGE 7 OF 8)
1. Pooling of funds 1. Large minimum amount to invest (i.e.,
2. Professional Management $3,000 to $5,000)
3. Diversification 2. Not liquid. Funds tied up (i.e., five to
4. Leverage (Use borrowed money) seven years)
5. Many have income stream 3. No say in management
6. Limited liability 4. Possible decrease in value
7. Some have tax advantages 5. Some have lost major part of tax benefits
8. Possible value increase (after Tax Revision Act of 1986)
6. Complicates your income taxes
7. Never a 1st, 2nd, 3rd, 4th, 5th, 6th, . . .
POPULAR INVESTMENT VEHICLES FOR LIMITED PARTNERSHIPS
1. Real Estate
2. Oil and Gas
3. Equipment Leasing
4. Movies and TV Shows
INVESTMENT SCAMS AND FRAUDS
1. Get rich quick claims and promises.
2. Claims of very high returns (i.e., 30% to 40% per month!).
3. Chain letters involving financial assets.
4. Ponzi schemes and vanity rackets.
5. “Congratulations, you have won . . .”
6. Boiler room operations and Telemarketing scams.
7. Why are the elderly especially vulnerable?
8. Advance “Finders Fee” on loans.
DANGER SIGNS AND PRECAUTIONS TO TAKE
1. Claims of very high returns.
2. “If it sounds too good to be true, it probably is.”
3. High pressure — “Must sign now.” (Why?)
4. Telling you civic, government, or church officials involved.
5. Why have people in Utah lost so much money?
6. REMEMBER, BEFORE YOU INVEST, INVESTIGATE!
7. Check out the broker/promoter and the investment. (Contact The Utah State Division of
Securities at 1-800-721-SAFE.)
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INVESTMENTS PF-GG (PAGE 8 OF 8)
All Bonds (Except U.S. Government Issues) and Preferred Stocks are rated as to risk by Moody’s and
Standard and Poor’s. The standard ratings are:
AAA (Highest) BBB C
AA BB D (Lowest)
GIVE SEVERAL EXAMPLES FOR EACH OF THE FOLLOWING:
TAXABLE TAX DEFERRED TAX EXEMPT
INCOME INCOME INCOME
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Explain this triangle
BUY/SELL MUTUAL FUNDS (Continued from Page #4)
1. Open-End Funds: Sell unlimited number of shares. Usually buy/sell from issuing company.
(Over 90% this type). These funds just keep growing in size.
2. Closed-End Funds: Sell limited number of shares. Usually buy/sell on the open market like
3. NAV: Net Asset Value. Total value of all stocks or bonds owned by the fund, divided by number
of shares the fund has issued. This amount changes daily and becomes the buy/sell price for shares
of that fund (plus any sales charge). This amount is calculated after the regular stock and bond
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