Investing Basics Investing Basics

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					Investing Basics

Investment and Finance 12
Ms. Stewart
Five Steps to Plan Your
1) Set your goals:
   - What are my top
   financial goals?
   - When do I hope to
   reach these goals?
   - How much money
   do I want to save?
Five Steps to Plan Your
2) Find out what kind of investor are you:
  - How do I want to approach investing?
  - How important is it to me to keep my money
  - How comfortable am I with the idea that I may
  sometimes lose money if I want to grow
  my savings faster?
  - How important it is to me to make a good
  return on my investments?
Five Steps to Plan Your
3) Pick a mix of investment types:
  - What types of investments do I understand
  and want to buy?
  Some types of investments may grow faster
  than others. A good mix of different
  investments (your asset mix) will help you get
  enough growth, while keeping losses in
  - Am I comfortable choosing my own asset
  mix? If not, get some expert advice.
Five Steps to Plan Your
4) Choose specific investments:
  - Once you know your asset mix, you can
  choose specific investments of each type.
  - Do a lot of research before you decide. Look
  at how an investment has done in the past and
  how well it may do in the future.
  - Again, many people get expert advice.
Five Steps to Plan Your
5) Keep track of your investments:
  - Keep good records of your investments
  so you will know how well each one
  - If you have an adviser, check that he or
  she is following your investment
  What kind of investor
          am I?
 Investing is about
  choices. The choices
  you make reveal who
  you are as an
  investor. This is
  called your investor
  profile. To discover
  your profile, ask
  yourself these four
How much risk is right for
  Higher risk means you may lose some or
  all of your money. Ask yourself:
 Do I want the chance to make more
  money if it also means I may lose
 Would I rather make less and keep my
  money safe
How much am I hoping to
  make by investing?
 With some investments, your return takes
  the form of income as interest or
 With others it takes the form of capital
  gains (or losses, if you sell an investment
  for less than you paid).
 In most cases, to get a higher return, you
  have to take more risk
   How long do I plan to
       invest for?
 Time horizon is the number of years that you plan to
  invest. For example, saving to buy a house is a
  shorter-term goal. Saving for retirement is a long-term
 Investments that don’t guarantee your return are often
  better for a longer time horizon.

  Example: An investment like a stock mutual fund may
  go up and down in value. If you have to sell early
  because you need your money, you may take a loss. If
  you can stay invested longer, you may get a better
  return over time.
Do I need to get my money
  How easy will it be to get your money back
   from an investment? This is called liquidity.
  In most cases, when you give up quick and
   easy access to your money, you should expect
   a higher return.
   Example: Bank account deposits often pay
   less than if you lock your money into a
   Guaranteed Investment Certificate (GIC) for
   three years. They may also earn less than a
   mutual fund over time.
  What mix of investments is
right for me at my stage in my
  Deciding on the right asset mix is an
  important part of investing and planning for
  your future. Your asset mix should:

 Help you balance risk with your expected rate of return
  on your investments
 Fit your comfort level for risk
 Enable you to get your money when you need it
 Help you get the growth you need to reach your goals
 Change as your needs and goals change over time
How does my stage in life
change the way I invest?
 Your age and life situation can play a
  big role in your choices. If you are
  about to get married, you might need
  your money to buy a home. If you’re in
  your 40s, you may be saving for
  retirement or your kids’ education.
Investment Pyramid
Early Investment Years

  If you’re just starting
   to work, you may not
   have a lot of savings.
   Still, time is on your
   side. For this reason,
   many people at this
   stage are willing to
   take more risks when
   making long-term
            Middle Years
 You may be earning
  more than ever, and
  you may also have a
  lot more
  - Children to support or
  help through school
  - Saving for retirement
  - Debt
         Retirement Years
 Older investors usually
  move their investments
  gradually over to safer
  guaranteed investments.
 They want to protect
  their savings because
  they’ll need to live on
  their investments after
  they retire.
 They may also prefer
  investments that create
  a steady, reliable stream
  of income.

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