1 Chapter 1: Introduction, Overview, and Risk versus Return
“In investing money, the amount of interest you want should depend upon on whether you want to eat well or sleep well.”
— J. Kenfield Morley
Investing is not as difficult as you think; we will show you how. (Speculating and trading are very, very difficult; we can’t help you with those. Sorry.) After you have taken this course, you will have a strong foundation of the most important financial investments. We cover stocks, bonds, mutual funds, short-term investments, commonly referred to as “cash,” hybrid instruments, and a few others. We want to emphasize that this is an introduction class. You do not need any prior investment experience. We start from the very beginning with the question: “What Is an Investment?”
In this chapter, you will
- Be introduced to the definition of an investment and the basic characteristics of investments ‒ We start from the very beginning! What is an investment?
- Review the major asset investment alternatives ‒ An Overview of the Investment Universe
- Explore the relationship of risk and return
- Identify the differences between an investor and a speculator/trader
- Concentrate and investigate short-term “cash” investment alternatives ‒ A Place to Park Your Money
- Discuss aspects of short-term “cash” investments with your fellow students
By the end of this chapter, you should be able to
- Given a typical investment, identify its characteristics including the cash flow (income) and capital gains (growth) components, and identify the advantages and disadvantages of the investment
- In a brief two- to three-sentence description, succinctly describe the major investment alternatives including stocks, bonds, mutual funds, and short-term “cash” investments
- Explain the historical relationship of risk and return (Do you want to eat well or do you want to sleep well?)
- Research short-term “cash” investment alternatives including demand deposit accounts such as savings accounts, Certificates of Deposits, money market accounts and money market mutual funds, and Treasury Bills
- Describe institutional short-term investment alternatives such as corporate paper and banker’s acceptance notes
- Optionally, calculate the future values of a lump sum principal investment and a series of investments
Don’t worry if any or all of this sounds scary now. We will learn all these terms and concepts in good time. They really are not as hard as they sound. Again, not for the last time, we want you to remember that this is an Introduction to Investments class. You need no prior investment experience nor training.
Every chapter has a corresponding presentation file and study guide. In BUS-123, Introduction to Investments, we use Google Docs. Please remember that all class material is located on the class website, https://www.wonderprofessor.com/123/. In this first chapter, we have a video presentation that discusses the study guides and also demonstrates how to download documents or make a copies of documents using Google Docs.
