offshore investing

Introduction to Amateur Investing Ryan Prescott Adams Department of Physics University of Cambridge http://www.inference.phy.cam.ac.uk/rpa23/ 10 February 2006 Why Invest? Buying a Home Children’s Education http://www.larsonobrien.com/follansbee/Farmhouse.jpg Copyright Adam Wierman Retirement http://www.effortlessswing.com/images/golf.jpg The Wonders of Compounding Interest What Should I Invest In? There are many options: Savings/Chequing Accounts Money Market Accounts Stocks Bonds Futures Precious Metals Currencies Rare Goods http://www.algonet.se/ luther/shrug.gif Plus many others... Consider Your Situation Questions to Ask: Liquidity How soon do you need this money? Consider Your Situation Questions to Ask: Liquidity How soon do you need this money? Risk How badly do you need this money? Consider Your Situation Questions to Ask: Liquidity How soon do you need this money? Risk How badly do you need this money? Quantity How much do you have to invest? Consider Your Situation Questions to Ask: Liquidity How soon do you need this money? Risk How badly do you need this money? Quantity How much do you have to invest? Effort How much time do you have to deal with it? Consider Your Situation Questions to Ask: Liquidity How soon do you need this money? Risk How badly do you need this money? Quantity How much do you have to invest? Effort How much time do you have to deal with it? Ethics Is maximizing return your only concern? Categorizing Investments Savings and Chequing Accounts Basic Interest-Bearing Account Extremely liquid Governmentally insured $100K in US £31K in Britain http://www.plambeck.org/oldhtml/journal/bankteller.gif Low minimum investment Easy Low returns (1-2%) 5% in UK! Weird conditions Money Market Deposit Accounts (MMDAs) High-yield Savings with Minimums Quite liquid More transaction restrictions US government insured Higher minimum investment Not all banks offer them Not common in UK That’s okay because UK savings returns are higher Lowish returns (3-4%) http://www.tucows.com/preview/165097 Certificates of Deposit High-yield Savings with Term Lengths “Deposit Bonds” in the UK Specific Term Lengths Three months to five years Penalty for early withdrawal US government insured (If bank-offered) Higher rates for larger deposits Can miss interest rate changes Lowish returns (3-4%) http://www.bsistore.com/Images/passbookandjacket/200-i-passbook-012-jacket.jpg Money Market Fund Collective Money Market Investment Can be quite liquid Cheque writing, etc. Low risk, but not FDIC insured Designed to be like a bank account Try to keep shares at $1 Investment in short-term debts Access to institutional-level money market returns Management overhead Returns paid through monthly dividend Some focus on market segments Municipal, corporate, offshore Better returns (3-5%) http://www.ltmonline.com/common/issues/ja2005/crowd.jpg Treasury Securities Lending Money to Dubya Treasury Bills, Notes, and Bonds lots of different term lengths treasurydirect.gov Extremely low-risk Easy to sell Nonliquid variant: Savings bonds not transferrable Return around 4% (depending on length) http://images.vector-images.com/119/treasure_dep_n6713.gif Inflation-Indexed Treasury Bonds Protection Against Inflation Coupon rate increases with inflation Must hold for at least 12 months Low risk treasurydirect.gov Taxes get you Can have nice returns: 5-6% http://www.businessfundamentals.com/balloons.jpg Corporate Bonds Lending Money to Companies Varying risk levels the company might go bankrupt Somewhat harder to buy and sell Potentially higher returns depends on the risk Currently 4-6% for A-rated and above, but historically have been much higher http://www.coxrail.com/images/cancel-machine.jpg Stocks Buying Bits of Companies Relatively risky varies a lot Lots of ways to buy and sell Transaction costs are significant Pricing is highly unpredictable Potentially the highest returns Picking Stocks Only One Tried and True Method Picking Stocks, continued Investing in Fundamentals Choosing to invest in companies that you believe have long-term viability. You believe the company will grow and pay dividends. Speculation Choosing a company because you believe it’s stock price will go up and you can sell it in the short or medium term for a gain. http://www.tomostudio.com/exhibitions_berggruen.html Speculation Leave it to the professionals (and gamblers) You think you know something the market hasn’t already included in the price? Not likely. If you really do, then you might be insider trading. If I knew how to pick short-term stocks, I wouldn’t tell you my secrets anyway. http://www.placertourism.com/member/19/images/Image/dining/poker-hand.gif Investor Tools The Internet Things to Notice Market Capitalization Earnings Per Share Price to Earnings Ratio Dividend Yield Investor Tools, continued SEC Filings The US Securities and Exchange Commission Annual Report to Shareholders 10-K Annual Report to the SEC Proposed Sales by Insiders Laziness Mutual Funds Dedicated professionals Diverse portfolio Can still be niche-specific Management overhead You still have to pick a fund or manager Index Funds Track a particular index Diverse portfolio You still have to pick an index http://www.shootandshow.co.uk/la-z-boy/images/cool_chair-lrg.jpg Brokerages Getting in the Game Full-Service Brokers lots of advice, planning, taxes Morgan Stanley, Merrill-Lynch, UBS Discount Brokers no advice, just trades TD Waterhouse, Scottrade Online Brokers no advice, just trades Ameritrade, ETrade http://www.bingoking.com/images/kingsclub/prizes/hartmann briefcase.jpg Advanced Speculation Trading on margin borrowing from the broker Short selling selling it before you own it Options purchasing the right to buy or sell at a price http://www.logodesignweb.com/stockphoto Advanced Speculation, continued Common Personal Finance Pitfalls Worthless Advice Pay off consumer debt first! Know your interest rates Buy stocks you know, but that aren’t tied to your industry Don’t lose both your job and your money Diversify Spread risk http://perfilip.typepad.com/photos/uncategorized/ Questions?