Download Investments and Their Characteristics

Investments and Their Characteristics
______________________________ - The act of committing money to an
endeavor with the expectation of obtaining a profit.
More simply, investing means using your money to buy a financial instrument or
make a loan to another person or organization to receive a return on your money.
There are many different types of investments which have different risks. It is
important that you recognize that different individuals have different goals, wants,
and needs from their investments. In other words, different people have different
____________________________________________.
Many events over one’s lifetime will cause their investment strategies to change.
For instance, the following events will have a big impact on your needs and wants
which will in turn influence your investment strategy:
 ____________________________________________
 ____________________________________________
 ____________________________________________
 ____________________________________________
 ____________________________________________
 ____________________________________________
 ____________________________________________
 ____________________________________________
1
 ____________________________________________
 ____________________________________________
An individual who is twenty-four years old, female, single, employed as an
electrical engineer ($66,000/year), and doesn’t plan on having and children can
certainly be a very ___________________________ investor taking large risks
with the hopes of large returns.
An individual who is fifty-one years old, male, married with four children (two
starting college next year), and is employed as a bus driver ($37,000), and has a
modest amount of savings in his retirement might want to invest in more
__________________________ investments.
Characteristics of Various Investments
_______________________________ - The degree to which an investment can be
bought or sold without affecting the investments price. Investments that can be
easily bought or sold are known as liquid assets.
_______________________________ – Sometimes the price of a stock you
bought goes down and you lose some or all of the money you invested in that
stock.
_______________________________ – The length of time that an investment is
often held before being sold.
2
_______________________________ – The amount of gain (loss) that an investor
makes (loses) on an investment.
Six Common Investments
I. Stocks
Stock represents ____________________in a corporation and represents a claim
on part of the corporation's assets and earnings.
Owners of stock are called shareholders or stockholders.
____________________Stock
i. Shareholders have right to vote for the ____________________
ii. Shareholders have right to receive ____________________
The board of directors makes the major decisions for their company. When a
corporation earns a profit, it can either ____________________it in the business to
grow bigger by hiring more workers, buying new equipment, opening more stores,
or purchasing real estate, etc. Instead of re-investing their earnings a corporation
may distribute it to their shareholders in the form of ____________________.
Dividends are payments made by a corporation to its shareholders. Shares of stock
3
can easily be traded on a _______________________________. The price of any
stock is determined by the forces of supply & demand.
Many factors can cause the price of a stock to rise or fall…some of these factors
include:

announcement of __________________________

announcement of future ____________________earnings

introduction of a new ________________________ or a product recall

securing a new large ___________ for orders (Boeing)

__________________ layoffs

anticipated _____________________ or merger

a change of _____________________________

___________________________ scandals

_______________ or rejection from FDA (Food & Drug Administration)

filing of ______________________ against company
___________________________ are professionals who make investment
recommendations to their clients.
4
II. Bonds
A bond is an investment in which an investor (called a bondholder) ____________
money to a company or governmental body, called the bond issuer.
The issuer borrows the funds for a defined period of ____________________
(maturity date) at a fixed interest rate. The issuer must pay both the
____________________and the ____________________to the bondholder.
Bonds are sold by companies, municipalities, states and the federal government to
finance a variety of projects and activities. For instance, the state of Pennsylvania
might sell a 4% bond with a maturity date of 12/2/18 to raise money to build a
bridge or Honda Motor Corporation might sell a 5% bond with a maturity date of
1/22/23 to raise money to build a new factory in Florida.
Usually the higher the interest rate on a bond is, the more risky it is likely to be.
Companies that are close to going into bankruptcy can still attempt to raise money
by selling (issuing) bonds, but they will have to offer higher interest rates to attract
buyers. Bonds sold by companies that are in bad financial shape are called
____________________ bonds because buyers of their bonds might not receive
their interest payments or may even lose their principal if the company goes
bankrupt.
5
III.
Mutual Funds
_________________________________ are pools of money that are managed by
an investment company.
The pools of money come from investors. Mutual funds help investors by allowing
investors to achieve ____________________. Diversity lessens the amount of risk
that investors face as they invest their money.
They offer investors a variety of goals, depending on the fund. Some common
funds include:
 ____________________funds (different parts of the world)
 ____________________ (different industries such as oil companies,
technology companies, electric companies, & airline companies, etc.
 ____________________ funds (alternative energy companies)
 ____________________funds (avoiding companies dealing involved in
alcohol,
tobacco, gambling, pornography, weapons)
 ____________________funds (stocks that are risky but may have very high
returns)
6
IV.
Precious Metals
Gold has been the universal symbol of wealth for civilizations throughout the ages.
Surprisingly, gold and other precious metals are found in electronics, technology
components, medical equipment, computers, automotive parts, photo processing,
water purification, fuel cells, and in many other products. Precious metals include:
____________________________
________________________________
____________________________
________________________________
Concern for future inflation is one factor pushing metal prices higher. Holding
metals is a way of spreading portfolio risk during times of economic upheaval and
war, and when inflation threatens currency values. Buying precious metals is
considered a ______________________ against inflation.
7
V. Collectibles
A collectible is any physical asset that appreciates in value over time because it is
rare or it is desired by many people. Examples of collectibles include:
_________________________________ ________________________________
_________________________________ ________________________________
The objectives behind investing in collectibles vary depending on the person and
the collectible. Collectibles can take very long to increase in value, and they offer
no assurances as to their value in the future. Furthermore, unlike other investments,
collectibles offer no income. The one advantage is that most collectibles increase
in value along with inflation.
Advantages of collectibles
1. Many collectibles are _____________________.
2. Collectibles generally gain capital value above the average rate of inflation.
3. Unlike shares, bonds and other investment instruments, you can actually
_________________ your investment as you wait for the price to appreciate.
4. It’s a passion – you’ll enjoy learning about your collectibles almost as much
as you’ll enjoy the hunt.
Disadvantages of collectibles
1. Highly valuable collectibles can be extremely _______________________.
This means you’ll often have to invest a far larger portion of your capital
than you’d normally risk on any one investment. And that means greater
risk.
2. The collectibles’ market has many devious __________________.
8
3. It’s a volatile industry utterly ruled by the dynamics of supply and demand.
Sometimes, this can lead to __________________ problems in certain
sectors and, if you’re in a hurry to sell, you could find it difficult to find a
buyer.
9
VI. Real Estate
Real estate investing involves the purchase, ownership, management, rental and/or
sale of real estate for profit.
Most real estate investors implement one of three strategies when using real estate
as an investment.
1. Buy real estate and ________________ it out to tenants.
a. Residential property – houses and apartments
b. Commercial property – office buildings, retail outlets, industrial uses
2. Buy property, fix it up. and ____________ it for a profit. (flipping property)
3. Buy ___________________ land and wait until it appreciates in value
Some good ways to buy property at a good price include:
Real Estate Agents
Banks
Public Auctions
Professions related to real estate include…
Real Estate __________________ – find buyers and sellers of residential real
estate or find tenants for rental properties – get paid on a commission basis
Real Estate ______________________ - provide unbiased estimates of a
property's value and quality
____________________ Management - responsible for negotiating leases,
ensuring that tenants are satisfied, that rent is paid and that rents reflect market
conditions
__________________________ Broker – assist buyer in securing financing for
the purchase of real estate
Home _____________________ - evaluate new or previously owned houses to
determine the condition of the home's systems and structure.
10
11