There are thousands of investments from all over the world.
The answers are dependent on the knowledge and financial circumstances of the investor.
Finding financial information has never been easier.
Financial news bombards investors today.
The Internet makes it possible for investors to trade securities with each other and for information to be listed that distinguishes one investment from another.
Free and low-cost access to tools that were once restricted to professional investors helps create a description of the investment process and types of more level playing field--yet at the same time, such easy investors.
Discuss the principal types of investments regardless of whether you are an experienced investor or a new investor.
There is a tradeoff between policy statement, review fundamental tax considerations, investment's risk and return, and the purpose and content of an investment.
People would like to discuss investing over the life cycle.
There are examples of the link between risk and return in this text.
A broad overview of the invest is provided in this chapter.
It introduces the various types of investments, the people with financial expertise and the role that investments investment process, the role of investment plans, play in each.
If you are familiar with investment alternatives and have realistic investment plans, you will have a better chance of financial success.
You are an investor.
You already have at least one investment to your name if you have money in a savings account.
A share of common stock may provide income, but investors buy stock because they expect the price to go up.
Since 1900, the average annual return on a savings account in the United States has been 3%.
The average annual return on common stock has been over 9%.
The returns on nearly all investments fall below long-term historical averages during major market downturns.
It doesn't provide added income and its value doesn't increase, so it fails both of the tests.
Inflation erodes the purchasing power of money left in a non-interest-bearing checking account.
The study of investments begins with looking at the types of investments and the structure of the investment process.
If you invest in a company or a government entity, they will offer you a future benefit in exchange for using your funds.
You are giving up the use of your money in exchange for the chance to have more money in the future and thus be able to consume goods and services in the future.
Organizations compete for the use of your funds, just as retailers compete for your dollars by offering a wide variety of products with different characteristics, and organizations attempting to raise funds from investors offer a wide variety of invest ments with different attributes.
The Investor Facts offer might triple in value in a short time.
The investments you choose will depend on your goals, resources, and willingness to take risk.
A number of tidbits of information can be described.
The most common types of securities are stocks and bonds, which perform better than more exotic types such as stock options.
Large companies tend to have highly liquid stocks, and investors trade billions of shares of "Paint by numbers" each day in the markets all over the world.
January 30, 2012 is the focus of this text.
If you buy shares of common stock in a company such as Apple Inc., you have made a direct investment in that company, and you are a part owner.
If you send your money to a mutual fund company that has stocks in it, you are making an indirect investment in the assets that have lower IQ scores.
The United States has been giving direct ownership of common stock to Finns for a long time.
In 1945, the majority of the common stocks listed in the United States were owned by people under the age of 20.
In most of the age, the same trend has occurred, and it was a very strong predictor of whether these men would become world's larger economies.
In the United Kingdom, households' direct ownership of shares fell from over 70% in the last half century to less than 4% in the last decade.
In most of the world's major stock markets, households directly hold less than 25% of outstanding.
The institutions that manage money for households hold your direct ownership.
The 1945 In Behavior boxes gave institutional investors insights about common that held less than 2% of the outstanding stock in the United States, but mistakes that investors today their direct ownership is approaching 70%.
An important determinant in companies is being willing to avoid paying taxes on the income they contribute to a 401(k) in order to take some risk.
When employees withdraw their income, they are taxed on it.
Typically, mutual fund companies such as T. Rowe Price manage these 401(k) plans, so stocks in these plans only make up about 50% of the US population.
An important element of this trend is that individuals who trade stocks higher return than safer invest often deal with professional investors who sell the shares that individuals want to sell.
Fidelity that avoids stocks altogether may not accumulate as much wealth over the course of a year as they could if they were accounts, and the company employed 41,000 people, many of whom are willing to take more risk.
Individuals are wise to consider the advantages possessed by the people with whom they are trading.
Debt or equity can be scanned with one of two broad codes.
You lend money to the issuer when you buy a bond.
The issuer will repay the original loan at the end of the specified period of interest.
An equity invest ment can be held as a security or title.
There are bonds and stocks from an underlying asset.
A stock option is an investment that grants the right to purchase or sell a share of stock in a company at a fixed price for a limited period of time.
The market price of the underlying stock is what determines the value of this option.
Investments on the basis of risk are different.
The more uncertain the return associated with an investment is, the greater the risk.
You will be confronted with a continuum of investments that range from low risk to high risk as you invest over your lifetime.
Bond returns are easier to predict than M01.SMAR3988_13_GE_C01.indd.
It is not difficult to find bonds that are riskier than the stock of the firm.
In general, investors face tradeoffs between risk and return in order to get higher returns.
The life of an investment can be short or long.
Most of the money invested in securities international investing was issued by entities located in their home countries.
Today investors look for this icon as well.
Even when the returns offered by foreign investments are not higher than those found in domestic securities, investors may still choose to make foreign investments because they help them build more diversified portfolios.
It is easy to make foreign investments now that information on foreign companies is readily available.
Households, governments, and businesses are the key participants in the invest ment process, and each of these participants may act as a supplier or demander of funds at a particular time.
There are some tendencies.
Households who spend less than their income have money that they want to use to earn a return.
Governments often spend more than they take in through tax revenue, so they issue bonds and other debt securities to raise additional funds.
Debt or equity securities are issued to finance new investments.
Suppliers and demanders of funds usually come together through a financial market.
Financial markets include stocks, bonds, commodities, and foreign currencies.
Stock markets, bond markets, and options markets are included.
Most major economies have similar markets.
The prices of securities traded in these markets are determined by the interactions of buyers and sellers.
If investors want to buy more Facebook shares than investors want to sell, the price of Facebook stock will go up.
A new market price may result from PArt one I PrePArIng to Invest want to buy.
Financial markets simplify the process of bringing buyers and sellers together so that investors can transact with each other quickly.
Market prices for securities are easy to monitor in financial markets.
If investors learn about a new product and drive the firm's stock price up or down, that's an indication of how the product will be received in the market.
There is a diagram of the investment process in Figure 1.2.
The suppliers of funds can transfer their resources to the demanders through financial institutions, through financial markets, or in direct transactions.
Financial institutions can participate in financial markets as either suppliers or demanders.
For the economy to grow and prosper, funds must flow to those with attractive investment opportunities.
Organizations in need of funds would have a hard time obtaining them if individuals suddenly began to accumulate their excess funds rather than putting them to work in financial institutions and markets.
Government spending, business expansion, and consumer purchases would decline as a result.
When households have a lot of money, they have to decide if they want to make their own investment decisions or delegate some responsibility to professionals.
There is a distinction between two types of investors in the financial markets.
Individual investors focus on earning a return on their funds, building a source of retirement income, and providing security for their families.
Investment professionals make their living by aging other people's money.
Large volumes of securities are traded by these professionals.
Banks, life insurance companies, mutual funds, pension funds, and hedge funds are institutional investors.
Life insurance companies invest the premiums they receive from their customers to earn returns that will cover death benefits paid to beneficiaries.
Money borrowed by the Capital is eventually returned by the supplier.
Both individual and institutional investors apply the same fundamental principles.
Most indi vidual investors have less sophisticated analytical skills than institutional investors.
The first step in becoming an institutional investor is mastering this material.
Classify the roles of government, business and individuals as net suppliers or net demanders of funds.
Individual investors have a wide variety of investments to choose from.
Investments differ in terms of risk, maturity, and many other characteristics.
The majority of the text is devoted to describing the characteristics of different investments and the strategies that you may use when you buy and sell these investments.
Some basic information about the major types of investments will be summarized in Table 1.1.
Short-term investments have a life of one year or less and usually carry little or no risk.
People buy these investments to hold on to funds for a short period of time.
Conservative investors may be reluctant to lock up their funds in riskier, long-term assets such as stocks or bonds, so short-term investments are popular among them.
Liquidity is provided by short-term investments because they can be converted into cash quickly and with little or no loss of value.
It is not possible to know when an emergency will make it necessary to sell an investment in order to get cash.
The speed at which the investment can be sold is important.
Even if the owner is willing to lower the price enough, having to sell an investment at a bargain price only compounds the problem that led to the need to sell in the first place.
It was used to warehouse T-bills, Certificates of deposit, and to provide liquidity.
There are equity investments that represent the chs.
Fixed-income investments that make bonds.
Companies pool money from large-cap funds.
A fractional ownership interest in the firm is represented by each share of common stock.
If you buy 1 share of common stock in a corporation that has 10,000 shares outstanding, you will be the tenth owner in the firm.
Capital gains and dividends give the return on investment in common stock.
Most firms that are small or growing fast do not pay dividends.
Dollar General paid dividends as their firm grew in 2015.
Quarterly dividends are usually paid by companies.
You have realized a capital gain if you sell a stock for more than you paid for it.
You have an unrealized capital gain if you hold on to the stock.
On the first day that the stock market was open for trading in the year, you purchased a single share of Whirlpool Corporation common stock for $155.
You received cash dividends during the year.
You sold the stock for $195 at the end of the year.
The return on Whirlpool shares in the year was calculated on a percentage basis.
At the end of the year, if you continued to hold the stock, you would have earned the same return, but your capital gain would not have been realized.
Since 1900, the average annual rate of return on common stocks has been 9.6%, so it was a good year for Whirlpool.
As a producer of durable consumer products such as refrigerators, washing machines, and the legendary KitchenAid stand mixer, Whirlpool's stock generally performs best when the economy is growing and consumers are making major purchases of new appliances.
The issuer of the security must fulfill a promise to make payments to investors or risk being sued, if they offer contractually guaranteed returns.
Even if a contractual obligation is not present, other fixed-income securities still have the expectation of regular payments.
Fixed-income securities are popular during periods of uncertainty when investors are less willing to invest in riskier securities such as common stocks.
When investors seek to "lock in" high returns, fixed-income securities are attractive.
Bonds, convertible securities, and preferred stock are the most common fixed income securities.
If you purchased a $1,000 bond paying 9% interest in semiannual installments, you would receive an interest payment of $1,000 every six months.
You would receive the bond's $1,000 face value at maturity.
Bonds can be difficult to sell prior to maturity because of their variability in terms of liquidity.
The average annual rate of return on long-term government bonds has been around 5% since 1900.
Corporate bonds are riskier than government bonds because they are not backed by the full faith and credit of the U.S. government.
The investor can convert it into a specified number of shares of common stock.
The capital gain potential of common stock is offered by convertibles, which provide the fixed-income benefit of a bond.
Unlike common stock, preferred stock has a fixed rate.
Firms are required to pay dividends on preferred shares before they can pay dividends on their common shares.
If a firm stops paying preferred dividends due to financial difficulties, it must usually make up all of the missed payments before it pays dividends on common shares.
Capital gains can be provided by preferred shares if investors purchase them for the divi dends they pay.