Friday, April 24, 2009

Investing For Your Future

Investing For Your Future is an online class offered by the Oregon State University extension service.

It covers pretty much every aspect of personnal finance at introductory level and encourages you to learn more by practicing yourself.

I like the fact that I can (hopefully) trust this source has unbiased information.

Below are a few information and investment tips I found worth writing down.

On a Company's Balance Sheet, the value of a company’s assets must equal the sum of its liabilities and shareholder equity (the total value of all shareholders’ investments in a company.

Current ratio is current (less than a year) assets divided by current liabilities. A 2:1 ratio ($2 of assets for every $1 of debt) is considered adequate.

Debt-to-equity ratio is a company’s total liabilities divided by shareholder equity. It should be less than 1:1.

Earnings per share is net income divided by the number of outstanding shares.

Price/earnings (P/E) ratio is calculated by dividing the share price by earnings per share

Types of Stocks

Growth stocks are those of companies that are expected to increase in value. They may have high P/E (price to earnings) ratios. This means that the price of the stock is high compared to the forecasted earnings. A high ratio tends to indicate a more speculative situation. A low ratio tends to indicate a more conservative investment.
Income stocks are expected to pay regular, relatively high (compared to other companies) dividends.
Speculative stocks are those that have potential for the future. They generally do not pay much in dividends and their prices may be relatively volatile.
Value stocks currently have relatively low prices compared to their historical earnings and the value of the company’s assets.
Blue chip stocks are those of established companies with relatively stable stock prices and relatively predictable earnings. Dividends have accounted for about 40% of the stock market’s total return, price increases for the remaining 60%.
Penny stocks are sold for $5 per share or less. They may be initial offerings with prices set intentionally low or stocks of companies that are experiencing difficult financial times. In either case, they are speculative stocks; if you invest in them, you should be prepared to lose all of your money

You can invest in/purchase real estate indirectly through
- Real estate limited partnerships
- Real estate investment trusts (REITs) They are required to distribute almost all of their annual income as dividends to investors (capital gain)
- Mortgage ownership

Online Stock trades are generally executed within seconds of placing an order

Municipal bonds are generally attractive to persons in the 25% marginal tax bracket and higher. Even though municipal bonds pay a lower return than other bonds, investors keep more of what they earn because the interest is generally federally tax-exempt. Interest is also state tax-exempt, if bonds are issued by an investor’s state of residence.

Use bonds to hedge stock investments. Buy a zero-coupon bond to guarantee the return of principal and use the balance of principal to invest in ownership assets (e.g., stock).

Many companies also allow their employees to borrow up to one-half of the funds from their 401(k) plan for any reason. Interest paid by the employee on the money that is borrowed from his 401(k) is paid into the employee's own account

Dividend Reinvestment Plans (DRIPs) and Direct-Purchase Plans (DPPs or "no-load stocks") allows you to buy stocks sometimes with no-fee or discount
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