Lesson 01: Steps you need to knows before you invest.

Investment is any vehicle into that your fund can be placed with an expectation that it will produce a positive income and/or that its value will be preserved or increased.

Return is the reward for owning an investment which means your income increase in value.

Debt is investor lends funds in exchange for interest income and repayment of loan in future (bonds)

Equity represents ongoing ownership in a business or property (common stocks)

Risk chance that actual investment returns will differ from those expected (Low Risk or High Risk)

Short-Term: mature within one year

Long-Term: maturities of longer than a year


Steps in Investing

•         Step 1: Meeting Investment Prerequisites

a.       Adequately provide for necessities of life, including funds for meeting emergency cash needs

b.      Adequate protection against losses from death, 
illness and disability

•         Step 2: Establishing Investment Goals

            Examples include:

1. Accumulating retirement funds
2. Enhancing current income
3. Saving for major expenditures
4. Sheltering income from taxes

•         Step 3: Adopting an Investment Plan

a.       Develop a written investment plan

b.      Specify target date and risk tolerance for each goal

•         Step 4: Evaluating Investment Vehicles

a.       Assess potential return and risk

b.      Chapter 4 will cover risk in detail

•         Step 5: Selecting Suitable Investments

a.       Research and gather information on
specific investments

b.      Make investment selections

•         Step 6: Constructing a Diversified Portfolio

a.       Use portfolio comprised of different investments

b.      Diversification can increase returns or decrease risks (Chapter 5 will cover diversification in detail)        

•         Step 7: Managing the Portfolio

a.       Compare actual behavior with expected performance

b.      Take corrective action when needed

Next -> Lesson 02

Referance:

1) Gitman, Joehnk; Fundamentals Investing 10th Edition; 2008