Ch 13 Investing Fundamentals
Monday, April 27, 2026 1:34 PM
Preparing for Investment Programs
- Establishing Investment goals
○ Goals Must be written, specific &measurable
1. How much do you need to meet your goals?
2. How long will it take you to make this much money?
3. How much risk are you willing to invest?
4. What possible economic/personal conditions could change your goals?
5. Are you willing to make sacrifices to meet this goal?
6. What are the consequences if you don’t?
7. Considering your economic situation, are your goals reasonable?
- Main Basic Needs to Invest
○ Emergencies - For unexpected events
○ Short term goals - Goals that can happen within the next year
○ Intermediate - Goals that can happen within 1-5yrs
○ Long-term - Goals that can happen within 5+ yrs
○ Retirement - Something that will provide money after you quit working
Performing a Financial Check up
- Ethical Concerns: Paying your bills on time
○ The Consequences of not paying your business/personal credit on time
§ Merchandise can be repossessed
§ A buisness can sue to recover lost costs of a product/service
§ Your credit score can be lowered & will show the late/missed payment
§ The added cost of credit (If available) maybe higher because of a low credit score
and/or missed payment
- Work to Balance your Budget
○ For some making money & managing debt is easer, they use their credit a lot, cash
advances & pay a finance charge of 20%
○ Don’t invest if you cant limit your credit payments to 20% of lower after tax income
§ For help w/ budgeting review ch 3
§ Some recommended apps are
□ Quicken Budgeting
□ YNAB - You Need A Budget
□ Every Dollar
- Managing Your Credit Card
○ Be aware that the following can lead to issues
§ MOST Americans own 3 credit cards
§ As of 2020, US families average $5,897 owed to credit as a household from only
paying the minimum
§ Over usage
○ According to Experian, most people were avoiding and/or not paying their credit
during the pandemic
- To avoid problems now & in the future w/ credit:
○ Pay your credit in full each month
§ **If you cant do that, I recommend trying to pay the minimum balance due once
a week**
○ Don’t over use your credit on small purchases
○ Don’t use cash advances that accept credit
○ Limit your self to two credit cards
○ If you need help look for Credit Counseling & National Foundation of Credit
Counseling
- Start an Emergency Fund
○ Have some money set aside you have immediate access to
§ 3x the cost of your living expenses is recommended
- Have Access to other sources of Cash for emergency needs
○ A line of credit
§ A short term loan that is approved before the money is actually needed
Economic Factors that can affect your Personal Finances
- Economics
○ The study of how wealth is created & distributed
- Economics is used to explain business, govt, individual choices & what is important to each
group
- Fiscal Policy
○ Used to alter the tax structure & levels of govt spending to offset the effects of a
recession should one happen
- Monetary Policy
○ When the federal reserve determines the level of interest rates both consumers &
businesses can pay to borrow money
- Both Fiscal & Monetary are used to stabilize & encourage growth in the economy
- Business Cycle
○ The increase & decrease of the nations economic activity
- 5 Steps to manage your money in the event of another economic crisis
1. Establish a larger than normal savings fund
2. Know what you owe
• List your debts & when they are due, how much; these are typically rent,
transportation, medicine, utilities & food
3. Reduce unnecessary spending
4. Notify credit card companies & lenders if your not able to make a payment
5. Monitor the value of your investment & retirement accounts
Getting The Money Needed to Start an Investment Program
- Priority of Investments, questions you need to ask yourself:
• Are you willing to sacrifice immediate purchases for your investments?
• Can you control your spending to invest in programs?
• Are you motivated to save money on a regular basis?
- For some people the easiest way to invest is in their jobs 401K or 403b retirement plan
• Be aware that not all companies will match your savings, i.e. if you decided to put $75
each paycheck towards retirement not all businesses will do this for their employees it
varies
- How the Time Value of money affects your Investments
• The formula
§ $$ (# invested each year)(# of yrs)
- Factors Affecting the Choice of Investments
• Safety & Risk
§ Safety - an investment w/ minimal risk/loss
□ Bonds, CD’s, Stocks, mutual funds
§ Risk - an investment of uncertainty about the outcome
- Speculative Investment
• A high risk investment made to possibly earn a larger profit in a shorter amount of
time
- The Risk-Return Trade-Off
1. Investors often choose certain investments because of predictability of income
2. Other types might decrease in value like oil, gas & petroleum w/ the rise of EV’s
- Evaluating your tolerance for Risk
• Every one evaluates their situation differently to see if the risk is worth the reward
§ Higher risks usually comes w/ the expectation of a higher reward
- Calculating Return on an Investment
• You can earn 1.5% a yr on a CD from the FDIC (Federal Deposit Insurance Corporation)
• A Mutual Fund can earn as high as 7% a year, but this is a higher risk & not always
guaranteed
- The Rate of Return
• The total amount of income you receive on an investment over a specific period of
time
Rate of Return =
Components of the Risk Factor
- Inflation Risk
• The risk that a financial investment wont keep up w/ the rate of inflation
- Interest Risk
• Associated w/ govt and/or corporate bonds that change interest rates based on
economic changes
- Business Failure Risk
• W/ every investment you face the possibility of a failed investment that will cause a
loss in either personal or professional profit
§ The best way to protect yourself from losses is to always evaluate & re-evaluate
- Market Risk
• Systematic
§ Happens when overall risk is in both the economy & the stock markets
□ i.E. Economic crisis, rising interest rates, political activity, natural disaster etc
• Unsystematic
§ Affects a specific economy and/or company
- Global Investment Risk
• When markets decline in the US they may be rising in the global economy which can
offer more safety
- Investing Income
• The safest types of investments are:
§ Savings accounts, CD’s & Security Deposits issued by the govt
• Investments as income, focus should be on:
§ Municipal & corporate bonds, preferred and/or selected stocks
Investment Growth
- Companies like facebook, amazon & Netflix all have an investment stock in common
• These types of companies are considered growth companies
• They don’t really pay dividends in return for a future value, instead investors pay cash
for increased stock market value in return
Investment Liquidity
- The ability to buy or sell an investment quickly w/o being affected by the investment value
• Meaning you wont gain or lose money from this purchase & return
Asset Allocation & Investment Alternatives
- Assets Allocation & Diversification
• The process of spreading your assets over several different types of investments in
attempt to lessen your risk
- Types of assets include:
• Stocks issued by large corporations (large cap)
• Stocks issued by medium Corps (med cap)
• Stocks eased by small Corps (small cap)
• Foreign stocks
• Bond & Cash
§ Mutual funds can also be included in assets
- Investments by percentage are determined by:
• Your age & investment goals
• Ability to tolerate risk
• Earnings & Savings per year
• Dollar value of current investments
• Economic Outlook
- Time Factor
• The typical investment for financial security, safety, income, growth & speculation
- Your Age
• Younger investors tend to be more goal orientated and have a large sum to put into
their investments
• As we grow older our goals change & the way we use our money
§ Older Investors
□ Usually more conservative w/ their money
□ Invest in govt & high value corporate bonds
□ Don’t have the same recovery time as younger people
• Many Financial advisors suggest subtracting your age from 100, the difference is how
much should be put into a growth investment
An Overview of Investment Alternatives
- Stock or Equity Financing
• Equity Capital
§ Money a business obtains from the owner
• Two factors to consider before Investing:
1. A corporation is not required to repay money earned from either a sale of a stock or
having to rebuy the stock
2. A corporation in not legally required to pay dividends to stock holders
• Dividends - A distribution of money, stock or other property that a corporation
pays to stockholders
- Two Types of Stocks
○ Common Stock
• Represent the most common/basic form of corporate ownership that provides
□ A source of income when the company pays dividends
□ Potential Growth in dollar value if the stock increases
○ Preferred Stock
• Receiving cash dividends before stockholders are paid
- Corporate & Govt Bonds
○ Corporate Bond
• A company’s written pledge to repay a specified amount of money including
interest
○ A Government Bond
• A Government or Municipalities written pledge to repay a specified amount of
money including interest
□ Will the money be repaid at the maturity date?
® Maturity Date - A set date that either a corporation, govt and/or
municipality will repay you for borrowed money
® Dollar amount of annual Interest = Face Value x Interest rate
- Mutual Funds (START WRITING HERE)
○ Pools money from many investors (the shareholders) to invest in a variety of securities
- Expense Ratio
○ Knowing what fee’s, sales charges, redemption & management fees will be in a
mutual fund
○ It’s recommended you find someone who has a fee under 1% to manage your mutual
funds
- Real Estate
○ Increases the value of a property that can eventually be sold for profit
○ What factors determine what is good real estate?
1. Is the property priced competitively compared to others?
2. Is financing available?
3. How much are taxes?
4. Does the property need repair?
5. What are the conditions of the surrounding properties?
6. Why are the current owners selling?
7. Will the property decrease in value?
- Other Investment Alternatives include:
○ Options, Commodities, Derivatives
○ Bitcoin & other cryptocurrency puts
○ Precious metals & gemstones
○ Antiques & collectibles
Factors that Reduce Investment Risk
- Your Role in the Investment Process
○ Evaluating Potential Investments
§ Your Investment should be able to equate what you can make while working
○ Monitor the Value of your Investments
○ Keep Accurate Records
§ Purchase records on investments
§ Commissions
□ Dividends, interest payments, rental income etc
- Other Factors that improve Investment Decisions
○ Assistance from Financial Advisors
§ Look for someone who has training in:
□ Securities, taxes, real estate & estate planning; BUT you always have the final
say
Sources of Investment Information
- The Internet
○ You can obtain online
§ CD’s; Current prices on stocks, bonds & mutual funds
§ Brokers; recommendations on how to buy, hold & sell corporate and/or govt
securities
○ Links to check out for more info
§ Bloomberg Economic News CNN stock market
§ FINRA - Financial Industrial Regulatory Authority
- Newspaper & News Programs
○ CNBC
- Business Periodical
○ Barrons Money Magazine
- Corporate Reports
○ The govt requires corporations to sell info disclosing earnings, assets & liabilities,
products & services
- Investor Services & Newsletters
○ Some info via bed letters are free others is paid for
Monday, April 27, 2026 1:34 PM
Preparing for Investment Programs
- Establishing Investment goals
○ Goals Must be written, specific &measurable
1. How much do you need to meet your goals?
2. How long will it take you to make this much money?
3. How much risk are you willing to invest?
4. What possible economic/personal conditions could change your goals?
5. Are you willing to make sacrifices to meet this goal?
6. What are the consequences if you don’t?
7. Considering your economic situation, are your goals reasonable?
- Main Basic Needs to Invest
○ Emergencies - For unexpected events
○ Short term goals - Goals that can happen within the next year
○ Intermediate - Goals that can happen within 1-5yrs
○ Long-term - Goals that can happen within 5+ yrs
○ Retirement - Something that will provide money after you quit working
Performing a Financial Check up
- Ethical Concerns: Paying your bills on time
○ The Consequences of not paying your business/personal credit on time
§ Merchandise can be repossessed
§ A buisness can sue to recover lost costs of a product/service
§ Your credit score can be lowered & will show the late/missed payment
§ The added cost of credit (If available) maybe higher because of a low credit score
and/or missed payment
- Work to Balance your Budget
○ For some making money & managing debt is easer, they use their credit a lot, cash
advances & pay a finance charge of 20%
○ Don’t invest if you cant limit your credit payments to 20% of lower after tax income
§ For help w/ budgeting review ch 3
§ Some recommended apps are
□ Quicken Budgeting
□ YNAB - You Need A Budget
□ Every Dollar
- Managing Your Credit Card
○ Be aware that the following can lead to issues
§ MOST Americans own 3 credit cards
§ As of 2020, US families average $5,897 owed to credit as a household from only
paying the minimum
§ Over usage
○ According to Experian, most people were avoiding and/or not paying their credit
during the pandemic
- To avoid problems now & in the future w/ credit:
○ Pay your credit in full each month
§ **If you cant do that, I recommend trying to pay the minimum balance due once
a week**
○ Don’t over use your credit on small purchases
○ Don’t use cash advances that accept credit
○ Limit your self to two credit cards
○ If you need help look for Credit Counseling & National Foundation of Credit
Counseling
- Start an Emergency Fund
○ Have some money set aside you have immediate access to
§ 3x the cost of your living expenses is recommended
- Have Access to other sources of Cash for emergency needs
○ A line of credit
§ A short term loan that is approved before the money is actually needed
Economic Factors that can affect your Personal Finances
- Economics
○ The study of how wealth is created & distributed
- Economics is used to explain business, govt, individual choices & what is important to each
group
- Fiscal Policy
○ Used to alter the tax structure & levels of govt spending to offset the effects of a
recession should one happen
- Monetary Policy
○ When the federal reserve determines the level of interest rates both consumers &
businesses can pay to borrow money
- Both Fiscal & Monetary are used to stabilize & encourage growth in the economy
- Business Cycle
○ The increase & decrease of the nations economic activity
- 5 Steps to manage your money in the event of another economic crisis
1. Establish a larger than normal savings fund
2. Know what you owe
• List your debts & when they are due, how much; these are typically rent,
transportation, medicine, utilities & food
3. Reduce unnecessary spending
4. Notify credit card companies & lenders if your not able to make a payment
5. Monitor the value of your investment & retirement accounts
Getting The Money Needed to Start an Investment Program
- Priority of Investments, questions you need to ask yourself:
• Are you willing to sacrifice immediate purchases for your investments?
• Can you control your spending to invest in programs?
• Are you motivated to save money on a regular basis?
- For some people the easiest way to invest is in their jobs 401K or 403b retirement plan
• Be aware that not all companies will match your savings, i.e. if you decided to put $75
each paycheck towards retirement not all businesses will do this for their employees it
varies
- How the Time Value of money affects your Investments
• The formula
§ $$ (# invested each year)(# of yrs)
- Factors Affecting the Choice of Investments
• Safety & Risk
§ Safety - an investment w/ minimal risk/loss
□ Bonds, CD’s, Stocks, mutual funds
§ Risk - an investment of uncertainty about the outcome
- Speculative Investment
• A high risk investment made to possibly earn a larger profit in a shorter amount of
time
- The Risk-Return Trade-Off
1. Investors often choose certain investments because of predictability of income
2. Other types might decrease in value like oil, gas & petroleum w/ the rise of EV’s
- Evaluating your tolerance for Risk
• Every one evaluates their situation differently to see if the risk is worth the reward
§ Higher risks usually comes w/ the expectation of a higher reward
- Calculating Return on an Investment
• You can earn 1.5% a yr on a CD from the FDIC (Federal Deposit Insurance Corporation)
• A Mutual Fund can earn as high as 7% a year, but this is a higher risk & not always
guaranteed
- The Rate of Return
• The total amount of income you receive on an investment over a specific period of
time
Rate of Return =
Components of the Risk Factor
- Inflation Risk
• The risk that a financial investment wont keep up w/ the rate of inflation
- Interest Risk
• Associated w/ govt and/or corporate bonds that change interest rates based on
economic changes
- Business Failure Risk
• W/ every investment you face the possibility of a failed investment that will cause a
loss in either personal or professional profit
§ The best way to protect yourself from losses is to always evaluate & re-evaluate
- Market Risk
• Systematic
§ Happens when overall risk is in both the economy & the stock markets
□ i.E. Economic crisis, rising interest rates, political activity, natural disaster etc
• Unsystematic
§ Affects a specific economy and/or company
- Global Investment Risk
• When markets decline in the US they may be rising in the global economy which can
offer more safety
- Investing Income
• The safest types of investments are:
§ Savings accounts, CD’s & Security Deposits issued by the govt
• Investments as income, focus should be on:
§ Municipal & corporate bonds, preferred and/or selected stocks
Investment Growth
- Companies like facebook, amazon & Netflix all have an investment stock in common
• These types of companies are considered growth companies
• They don’t really pay dividends in return for a future value, instead investors pay cash
for increased stock market value in return
Investment Liquidity
- The ability to buy or sell an investment quickly w/o being affected by the investment value
• Meaning you wont gain or lose money from this purchase & return
Asset Allocation & Investment Alternatives
- Assets Allocation & Diversification
• The process of spreading your assets over several different types of investments in
attempt to lessen your risk
- Types of assets include:
• Stocks issued by large corporations (large cap)
• Stocks issued by medium Corps (med cap)
• Stocks eased by small Corps (small cap)
• Foreign stocks
• Bond & Cash
§ Mutual funds can also be included in assets
- Investments by percentage are determined by:
• Your age & investment goals
• Ability to tolerate risk
• Earnings & Savings per year
• Dollar value of current investments
• Economic Outlook
- Time Factor
• The typical investment for financial security, safety, income, growth & speculation
- Your Age
• Younger investors tend to be more goal orientated and have a large sum to put into
their investments
• As we grow older our goals change & the way we use our money
§ Older Investors
□ Usually more conservative w/ their money
□ Invest in govt & high value corporate bonds
□ Don’t have the same recovery time as younger people
• Many Financial advisors suggest subtracting your age from 100, the difference is how
much should be put into a growth investment
An Overview of Investment Alternatives
- Stock or Equity Financing
• Equity Capital
§ Money a business obtains from the owner
• Two factors to consider before Investing:
1. A corporation is not required to repay money earned from either a sale of a stock or
having to rebuy the stock
2. A corporation in not legally required to pay dividends to stock holders
• Dividends - A distribution of money, stock or other property that a corporation
pays to stockholders
- Two Types of Stocks
○ Common Stock
• Represent the most common/basic form of corporate ownership that provides
□ A source of income when the company pays dividends
□ Potential Growth in dollar value if the stock increases
○ Preferred Stock
• Receiving cash dividends before stockholders are paid
- Corporate & Govt Bonds
○ Corporate Bond
• A company’s written pledge to repay a specified amount of money including
interest
○ A Government Bond
• A Government or Municipalities written pledge to repay a specified amount of
money including interest
□ Will the money be repaid at the maturity date?
® Maturity Date - A set date that either a corporation, govt and/or
municipality will repay you for borrowed money
® Dollar amount of annual Interest = Face Value x Interest rate
- Mutual Funds (START WRITING HERE)
○ Pools money from many investors (the shareholders) to invest in a variety of securities
- Expense Ratio
○ Knowing what fee’s, sales charges, redemption & management fees will be in a
mutual fund
○ It’s recommended you find someone who has a fee under 1% to manage your mutual
funds
- Real Estate
○ Increases the value of a property that can eventually be sold for profit
○ What factors determine what is good real estate?
1. Is the property priced competitively compared to others?
2. Is financing available?
3. How much are taxes?
4. Does the property need repair?
5. What are the conditions of the surrounding properties?
6. Why are the current owners selling?
7. Will the property decrease in value?
- Other Investment Alternatives include:
○ Options, Commodities, Derivatives
○ Bitcoin & other cryptocurrency puts
○ Precious metals & gemstones
○ Antiques & collectibles
Factors that Reduce Investment Risk
- Your Role in the Investment Process
○ Evaluating Potential Investments
§ Your Investment should be able to equate what you can make while working
○ Monitor the Value of your Investments
○ Keep Accurate Records
§ Purchase records on investments
§ Commissions
□ Dividends, interest payments, rental income etc
- Other Factors that improve Investment Decisions
○ Assistance from Financial Advisors
§ Look for someone who has training in:
□ Securities, taxes, real estate & estate planning; BUT you always have the final
say
Sources of Investment Information
- The Internet
○ You can obtain online
§ CD’s; Current prices on stocks, bonds & mutual funds
§ Brokers; recommendations on how to buy, hold & sell corporate and/or govt
securities
○ Links to check out for more info
§ Bloomberg Economic News CNN stock market
§ FINRA - Financial Industrial Regulatory Authority
- Newspaper & News Programs
○ CNBC
- Business Periodical
○ Barrons Money Magazine
- Corporate Reports
○ The govt requires corporations to sell info disclosing earnings, assets & liabilities,
products & services
- Investor Services & Newsletters
○ Some info via bed letters are free others is paid for
