final wk 6
dfresh90
BS-MG353_Week5_Chapter11.ppt
PFIN
5
Investment Planning
11
Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
GITMAN/ JOEHNK/ BILLINGSLEY
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
1 Discuss the role investing plays in financial planning process and identify several different investment objectives
2 Distinguish between primary and secondary markets as well as between broker and dealer markets
3 Explain the process of buying and selling securities and recognize different types of orders
LEARNING OUTCOMES
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4 Develop an appreciation of how various forms of investment information can lead to better investing skills and returns
5 Gain a basic understanding of the growing impact of the computer and Internet on the field of investments
6 Describe an investment portfolio and how you’d go about developing, monitoring, and managing a portfolio of securities
LEARNING OUTCOMES (continued)
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Investing
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- Process of placing money in some medium in the expectation of receiving future benefit
- Speculating: Future value and expected returns are highly uncertain
PFIN5| CH11
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Investment Objectives
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- Enhance current income
- Save for major purchase
- Accumulate funds for retirement
- Seek shelter from taxes
PFIN5 | CH11
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Ways to Invest
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- Common stock
- Bonds
- Preferred and convertible securities
- Mutual funds, exchange traded funds (ETFs), and exchange traded notes (ETNs)
- Real estate
PFIN5| CH11
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Securities Markets
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- Marketplace in which stocks, bonds, and financial instruments are traded
- Primary market - New securities are sold to the public by an issuer
- Secondary market - Old securities are traded between investors
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Exhibit 11.1
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U.S. Broker and Dealer Markets
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Regulating the Securities Markets
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- To ensure full disclosure of information with respect to new securities
- Securities and Exchange Commission (SEC): Regulates the disclosure of information about securities and oversees the operation of the securities exchanges and markets
Securities Act of 1933
- To provide SEC power to regulate organized securities exchanges and the OTC market
Securities Exchange Act of 1934
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Regulating the Securities Markets
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
PFIN5 | CH11
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Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
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- To improve accountability and transparency in the U.S. financial system
- To discontinue the “too big to fail” regulatory approach
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Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010
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- To protect American taxpayers from costly government bailouts
- To protect consumers from exploitative financial services practices
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Significant Federal Legislation
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Bull Market and Bear Market
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Stockbroker (Account Executives)
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- Person who:
- Buys and sells securities on behalf of clients
- Gives clients investment advice and information
- Required to understand the client’s investment objectives
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Types of Broker
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Brokerage Fees
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- Commissions received by brokerage firms for executing buy and sell orders for their clients
- Odd lot: Quantity of fewer than 100 shares of a stock
- Round lot: Quantity of 100 shares of stock or multiples thereof
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Securities Investor Protection Corporation (SIPC)
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- Nonprofit corporation subject to SEC and congressional oversight
- Insures customer accounts against financial failure of a brokerage firm
- Arbitration: Used to settle disputes between a brokerage firm and its clients
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Types of Order
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Annual Stockholders’ Reports
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- Made available to stockholders and interested parties that includes:
- Financial and descriptive information about a firm’s operations in the recent past
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Financial Press
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Financial Press
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Asset Allocation
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- Plan to preserve capital by protecting the portfolio against negative market developments
- By dividing a portfolio among different classes of securities
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Reasons to Re-evaluate Asset Allocations
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- Change in personal circumstances that changes investment goals
- Proportion of an asset rises or falls that changes target allocation
- Close to reaching certain goal
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Exhibit 11.6
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Four Model Portfolios
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- Investing
- Speculating
- Investment plan
- Prospectus
- Bid price
- Ask price
- Securities and Exchange Commission
- National Association of Securities Dealers
- Bull market
KEY TERMS
- Bear market
- Full-service broker
- Discount broker
- Online broker
- Odd lot
- Round lot
- Securities Investor Protection Corporation
- Market order
- Limit order
- Stop-loss
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- Dow Jones Industrial Average
- Standard & Poor’s (S&P) indexes
- NYSE index
- Dow Jones Wilshire 5000 index
- Portfolio
- Diversification
- Asset allocation
KEY TERMS
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Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
SUMMARY
- Investing is viewed as a process of purchasing securities wherein stability of value and level of return are somewhat predictable
- Each market under the securities market provides a mechanism for bringing the buyers and sellers of securities together
- There are different types of market under the securities market and making transactions in each market is simple
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