TOPIC 1 Investing principles

professor penny

Investments have tax implications. An asset sold within 12 months of purchase is subject to a short-term capital gain tax, which is higher than the long-term gain tax for assets sold after 12 months from purchase.

Learning goals

By the end of this topic, you should be able to:

Describe the common types of investments available to investors
Explain how to measure the return on investments
Identify the risks of investments
Explain the tradeoff between the return and risk of investments
Describe common investment mistakes that should be avoided

section outline

Topic 1 Investing Principles

1.1 Types of Investments

1.2 Risk and Return

1.3 Learning from Investment Mistakes

Content Videos

The Gus A. Stavros Center for the Advancement of Free Enterprise and Economic Education at Florida State University is pleased to offer these resources. They were created by Teaching Professor Joe Calhoun.

The captions were created by a computer program so sometimes they may be inaccurate or contain spelling or grammatical errors.

You may alternate the views by clicking on the white icon on the top-right corner of the screen.

The videos should not be downloaded or distributed beyond this site.

key point

The five most common types of investments are money market securities, stocks, bonds, mutual funds, and real estate.

Conversation with Coach Chris

Chris Hogan is the author of two #1 national best-selling books: Everyday Millionaires (2019) and Retire Inspired: It's Not an Age; It's a Financial Number (2016). While visiting Florida State University, he met with Stavros Center Director Joe Calhoun to discuss a variety of topics. In this segment, they discuss investing.

Certified peer mentors

Mentors give presentations to groups about our topics. They also assist other students in personal finance matters and answer questions during individual meetings. To schedule a presentation or an appointment to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.

a topical story

Isabella and Jamal freely walked into Ethan’s apartment. They’d all agreed to meet at his place and then make their way over to Strozier later. His living room smelled of popcorn and coffee, kernels spread across the counter.

“Ethan! We’re here!” Jamal yelled.

“Coming! One sec!” He said from his room. The living room TV was turned to the news, information about stocks scrolling across the screen. “Sorry,” Ethan said, walking into the living room. “I was on the phone with the bank. I want to take out a loan because there’s this company that is doing so well right now. I want to purchase stock in it, but don’t have the money for it right now.” he explained as he made another cup of coffee. Finals week had made coffee feel like liquid gold.

“Look, I don’t know much about stocks, but it kinda sounds like a bad idea to take out a loan for something like that.” Jamal said.

“No, you’re right Jamal. Ethan, you’re about to move out, don't you think there are other expenses you should focus on?” Isabela asked.

“Maybe, but this could be a good opportunity to invest!”

“Maybe, but it’s risky, don’t you think? My parents started doing a lot of investing a few years ago, and you’re breaking a few of the big rules right now.” Isabella said, laughing.

“Like what?” Ethan asked, clearly not knowing the ins and outs of investing.

“Well, you’re not really supposed to take money out to invest. I mean, you can, but it’s super risky. You need to think about how much risk you can handle. When you use a loan for more than half of your purchase, it’s called buying on the margin. Risk equals uncertainty which can sometimes end badly.”

“How could it end badly? I’m gonna make money!” Ethan said with excitement.

“The company’s stocks may be performing well now, but who knows? In a week, month, or longer it may not and you could lose money on it. You can’t have unrealistic goals and I don’t want you to take too big of a risk and make a habit of it. I’m no professional, but that’s just my two cents.”

“I understand. I appreciate it. Maybe I did act out of excitement. I should take a beat I think.” Ethan said, the disappointment clear in his eyes.

“I’m sorry. This isn’t to say you shouldn’t invest. Just maybe think and research a little longer first. Plus, remember, you have lots of options. Stocks, bonds, mutual funds, or even real estate. You’re not tied down.” Isabella had always been someone to not act fast--a balance when it came to Ethan.

“Where did this all come from? Are you a hidden investment genius?” Jamal asked, finally chiming into the conversation. “I’m impressed.”

“Just a childhood of listening in to my parents’ meetings. So, are we ready to go?”

“Alright yeah. Who’s driving?”

(Story created by Jasmine George, Ana Siqueira, Courtney Swanson and Alex Thompson)

related books

These books have a chapter directly related to this topic. Please read them for more details.

Chapters 4 & 5: Kiyosaki, Robert. Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Plata Publishing, 2017.

Chapter 9: Ramsey, Dave. Dave Ramsey's Complete Guide To Money. Ramsey Press, 2012.

Chapter 7: Hogan, Chris. Retire Inspired: It's Not an Age, It's a Financial Number. Ramsey Press, 2016.

Chapter 4: Bach, David. The Automatic Millionaire, Expanded and Updated: A Powerful One-Step Plan to Live and Finish Rich. Crown Publishing Group, 2016.

Principles 15, 16, & 51: Siegel, Cary. Why Didn't They Teach Me This in School?: 99 Personal Money Management Principles to Live By. CreateSpace Publishing, 2013.

Chapter 9: Ramsey, Dave. The Total Money Makeover. Nelson, Thomas, Inc. 2013.

Chapter 3: Stanley, Thomas; Willam Danko. The Millionaire Next Door: The Surprising Secrets of America's Wealthy. Taylor Trade Publishing, 2010.

Chapter 15: Lowry, Erin. Broke Millennial: Stop Scraping By And Get Your Financial Life Together. Penguin Publishing Group, 2017.

Five From the Field

Travis Hadwin is a founding partner, senior vice president, and wealth manager for Steward Partners Global Advisory. Based in Clearwater, FL, you can learn more about Travis and his company here: https://www.stewardpartners.com/index.html

In this video interview, Travis answers the following five questions:

What’s the difference between a broker and a wealth or financial advisor?
When is a good time to hire a wealth advisor?
If a person is just getting started with investing, what is the first asset they should buy?
For someone just getting started, how much money should they have in order to invest?
What are two common investing mistakes people make?

additional resources

https://www.bankrate.com/investing/stock-market-basics-for-beginners

https://www.daveramsey.com/blog/what-are-index-funds

https://mru.org/courses/money-skills/diversify-investments

https://www.youtube.com/watch?v=blnbxbftme0

https://www.youtube.com/watch?v=l4TzfPfLMB4

https://www.annuity.org/financial-literacy/

other books

Malkiel, Burton. A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing. W. W. Norton & Company, 2020.

Wood, William. Getting a Grip on Your Money: A Plain & Simple Christian Guide to Managing Personal Finances, Eliminating Debt, Spending, Saving & Giving, Investing for the Future. Intervarsity Press, 2002.

Bach, David. Smart Women Finish Rich, Expanded and Updated. Currency, 2018.

Bogle, John. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. Wiley, 2017.

Clason, George. The Richest man in Babylon. Dauphin Publications Inc., 2018.

Hill, Napoleon; Arthur R. Pell. Think and Grow Rich: The Landmark Bestseller Now Revised and Updated for the 21st Century. TarcherPerigee, 2005.

Lynch, Peter; John Rothchild. Beating the street. Simon & Schuster, 1994.

Kobliner, Beth. Get a Financial Life: Personal Finance in Your Twenties and Thirties. Simon & Schuster, 2017.

Orman, Suze. The 9 Steps to Financial Freedom: Practical and Spiritual Steps So You Can Stop Worrying. Currency, 2006.

Bach, David; John David Mann. The Latte Factor: Why You Don't Have to Be Rich to Live Rich. Atria Books, 2019.

Hogan, Chris. Everyday Millionaires: How Ordinary People Built Extraordinary Wealth―and How You Can Too. Ramsey Press, 2019.

important government sites

Economy:

Bureau of Economic Analysis reports GDP, Income, International Trade, and many others (Links to an external site.)

Bureau of Labor Statistics reports Unemployment, Prices, Productivity, and many others (Links to an external site.)

The U.S. Department of the Treasury's mission is to maintain a strong economy and create economic and job opportunities (Links to an external site.)

The U.S. Small Business Administration (SBA) continues to help small business owners and entrepreneurs pursue the American dream (Links to an external site.)

Banking:

The Federal Reserve System performs five functions to promote the effective operation of the U.S. economy (Links to an external site.)

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation's financial system (Links to an external site.)

The National Credit Union Administration is an independent federal agency that insures deposits at federally insured credit unions (Links to an external site.)

Federal Regulation:

The Internal Revenue Service is the nation's tax collection agency and administers the Internal Revenue Code enacted by Congress (Links to an external site.)

The Federal Trade Commission protects consumers and competition by preventing anticompetitive, deceptive, and unfair business practices (Links to an external site.)

The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation (Links to an external site.)

The CFPB is committed to providing consumers with up-to-date information and resources to protect and manage their finances (Links to an external site.)

(Links to an external site.)Other:

Social Security Administration (Links to an external site.)

Department of Education (Links to an external site.)

State of Florida

ECO 3041

ECO 3041 Personal Finance is a 3 credit hour course offered in-person and online each fall and spring semester. The purpose of the course is to provide you with the specific content knowledge of personal finance and to give you opportunities to start using that knowledge to create good habits, make better financial choices, and live a more fulfilling life. It covers material for all 33 topics listed here. See Professor Calhoun's most recent syllabus here. ECO_3041_SP21.pdf

follow us

Unconquered by Debt is at all of your favorite social media sites.

https://www.facebook.com/FSUnconqueredByDebt/

@ FSUnconqueredByDebt

@FSUConquerDebt

To schedule a presentation or an appointment with a certified peer mentor to discuss your situation email coss-financialpeermentor@fsu.edu or visit the Stavros Center financial wellness page.