Chapter 1: Introduction, Overview, and Risk versus Return

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“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?"

Learning Objectives

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.

1.1: What Is an Investment?
Welcome to Introduction to Investments. Do you want to be a successful investor? You can. You do not need any prior investment experience to take this class. You don’t have to be a genius or a technology whiz. There is no advanced math, only simple arithmetic that any 99¢ calculator can perform. So let's get started with a very simple question: What Is an Investment?
1.2: Investment Characteristics and Attributes
What follows is a list of general characteristics and attributes about the major investment options. Study these terms, write them down, print the chapter 1 Study Guide, and watch or listen to the first lecture for chapter 1 on the website or Canvas. This is all you need to learn and know for now.
1.3: An Overview of the Investment Universe
Let’s become casually acquainted with the major investment asset classes. We will dispense with all the tedious details. As before, concern yourselves with just what we cover here. Don’t fret. There will be plenty of time later on to learn the many intricacies of these investments. As we introduce each investment asset class, we will touch on the risk and return that we can expect from each.
1.4: Risk versus Return ‒ The Eternal Struggle of Investing
Here it is, Dear Readers! This is the entire class in one section! Do you want to eat well or do you want to sleep well?
1.5: Short-Term Investments Revisited ‒ A Place to Park Your Money
Short-term investments are vehicles that we use when we need the money to be safe. They are place to park our money. In return for this safety, we receive a much lower rate of return. Short-term investments allow us to sleep very well.
1.S: Summary
Congratulations ‒ You Have Finished Chapter 1 ‒ Introduction, Overview, and Risk versus Return