The goals of this chapter are: Apply risk and return principles to investments, develop an overall asset allocation, evaluate the factors that enter into investing in financial assets, relate financial investing to overall household operations, recognize how portfolio management differs from individual asset selection, . | Lecture Personal financial planning Chapter 9 Financial investments Chapter 9 Financial Investments 1 Chapter Goals Apply risk and return principles to investments. Develop an overall asset allocation. Evaluate the factors that enter into investing in financial assets. Relate financial investing to overall household operations. Recognize how portfolio management differs from individual asset selection. Distinguish among investment alternatives. Utilize leading ways of measuring investment risk. 2 Overview The planning system for asset allocation includes the following steps Establish goals. Consider personal factors. Include capital market factors. Identify and review investment alternatives. Evaluate specific investment considerations. Employ portfolio management principles. Implement portfolio management decisions. Review and update the portfolio. We will consider each in turn. 3 Establish Goals Goals are determined by our needs and the things and activities that we enjoy. Once we have established our goals we are in position to identify the role savings and investments play in the process. Investments can be viewed as a delivery mechanism they help create sufficient assets to fund our goals. Our investment focus is on the appropriate asset allocation to help meet our goals. 4 Consider Personal Factors Personal considerations include Time Horizon for Investments. Liquidity Needs. Current Available Resources. Projected Future Cash Flows. Taxes. Restrictions limitations on freedom of choice in investment alternatives or investment practices. Risk Tolerance The amount of risk you are willing to undertake. 5 Consider Personal Factors cont. We can group goals for investment purposes into five time horizons 6 Include Capital Market Factors We have established the goals and the distinguishing features of individuals. At the same time we need to examine the characteristics of the overall financial markets and of the various types of securities likely to be considered .
