The Complete Idiot's Guide to Investing, 3E,9781592574803

The Complete Idiot's Guide to Investing, 3E

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Edition: 3rd
ISBN13: 9781592574803
ISBN10: 1592574807
Format: Paperback
Pub. Date: 2006-02-07
Publisher(s): DK Publishing, Inc.
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Summary

The Complete Idiot s Guide to Investing, Third Edition , provides investment guidance and information to the ever increasing number of Americans who are looking to secure their future. Topics covered include portfolio objectives, home ownership, college education funding, fixed income investments, and common versus preferred stock.

Author Biography

Edward T. Koch has over 40 years of experience as an investment professional. Now retired, he was senior vice president and regional manager of Fleet Investment Advisors.
Debra DeSalvo is a writer, having contributed articles to Investor-'s Daily, Barron-'s, and NY Business, among others. She is co-author of How to Get a Business Loan Without Signing Your Life Away.
Joshua Kennon is the Investing for Beginners guide at About.com, a division of The New York Times. His series of lessons on financial statement analysis has been used by managers, investors, and universities throughout the world.

Table of Contents

Part 1: What Does ``Financial Security'' Mean to You?
1(68)
Put Your Money to Work for You
3(8)
Become an Educated Investor, Not Just a Consumer
4(1)
Investing in a Post-Bubble World
4(1)
Time, Risk, and Your Sanity
5(3)
Do Not Despise the Day of Small Beginnings
8(1)
The Big Picture: Keep Things in Perspective
9(2)
The Miracle of Compounding
11(14)
How Compounding Makes the Difference
12(1)
What Is the Time Value of Money?
13(1)
The Future Value of a Single Amount
13(1)
An Easy Way to Figure the Future Value of a Single Sum
14(2)
Present Value of a Single Amount
16(1)
An Easy Way to Figure the Present Value of a Single Sum
16(2)
Future Value of an Annuity
18(1)
An Easy Way to Figure the Future Value of an Annuity
19(1)
Present Value of an Annuity
20(2)
An Easy Way to Figure the Present Value of an Annuity
22(1)
To Eternity and Beyond: Determining the Value of a Perpetuity
23(1)
Endless Choices: TVM Derivations
23(1)
And Now for a Surprise
24(1)
How Do You Really Feel About Risk?
25(16)
What Is Return?
26(1)
What You Made, What You Paid
26(1)
Fear of Heights: The Higher the Return, the Greater the Risk
27(1)
The Tools of the Trade
28(3)
Standard Deviation and a Podunk Potato
29(1)
Deviant Behavior
30(1)
The Four Broad Asset Classes
31(1)
Variety Is the Spice of Life
32(1)
Quiz Thyself to Know Thyself: Risk Tolerance Quiz
32(5)
Got the Time? Take the Time Horizon Quiz
37(4)
Selecting Your Investing Objectives and Style
41(12)
Investing Objectives
42(1)
Keeping What You Have: Investing for Capital Preservation
43(1)
Show Me the Money! Investing for Current Income
44(1)
Jack and the Beanstalk: Investing for Capital Appreciation
44(1)
Bet the Farm
45(2)
Cheat Sheet
47(1)
Dollars for Pennies: The Value Investing Approach
48(1)
Weighing Machine vs. Voting Machine
48(1)
Margin of Safety
48(1)
Jeeves, Sell Me a Business!
49(1)
Grabbing Onto the Rocket: The Growth Approach
49(1)
Can't We All Be Friends?
50(3)
What Do You Have Right Now--and What Will You Need?
53(16)
Where Am I Now?
54(9)
Your Personal Balance Sheet: A Snapshot of Your Finances
54(3)
Get a Grip with a Personal Income Statement
57(2)
A Happy Couple on the Right Track
59(2)
Your Typical Young Guy Living Hand to Mouth
61(2)
Where Am I Going?
63(1)
How Am I Going to Get There?
63(6)
No Pain No Gain: Calculating What it Will Take in Actual Dollars
64(1)
Avoiding Major Mistakes
65(4)
Part 2: Creating a Plan
69(54)
Retirement Plans 101
71(16)
How Gold Do You Want Your Golden Years to Be?
72(1)
Defined Benefit Plans
73(3)
How the Amount of Your Monthly Pension Is Determined
74(1)
A Whole Lotta Lumps or Just One: The Lump-Sum Option
75(1)
If Your Employer Drops the Ball
76(1)
Defined Contribution Plans
76(1)
401 (k) and 403 (b) Plans
77(2)
Benefits of 401 (k) and 403 (b) Plans
77(1)
Can I Borrow from My 401 (k)?
78(1)
What If I Change Employers?
78(1)
Contribution Limits
79(1)
Should You Put All Your Eggs in the Company Basket? Ask the Folks at Enron
80(1)
What About Stock Options? Go for It
81(1)
Individual Retirement Accounts
82(1)
Old Faithful: The Traditional IRA
83(1)
The New Kid on the Block: Roth IRA
84(1)
Avoiding the 10 Percent Early Withdrawal Penalty
85(1)
Which Type of IRA Is Right for Me?
85(1)
Traditional and Roth IRA Contribution Limits
86(1)
Solving Debt and Credit Problems
87(10)
What Does Your Credit Report Say About You?
88(1)
CRA Horror Stories
88(1)
How to Check Your Credit Reports
89(2)
No Credit Is Not Good Credit
90(1)
Debit Cards---A Better Choice?
91(1)
The Mysteries of Your FICO Score
92(2)
Paying Your Bills on Time (35 Percent)
92(1)
Ratio of Debt to Total Credit Limit (30 Percent)
92(1)
Length of Credit History (15 Percent)
93(1)
New Accounts, Credit Inquiries, and Recent Applications (10 Percent)
93(1)
Mix of Credit Cards and Loans (10 Percent)
93(1)
Should I Pay Off My Debt or Invest?
94(3)
Home Ownership: What You Need to Know
97(12)
The Down Payment
98(1)
Timing Is Everything
98(1)
Re-Fi Mania
99(1)
Evaluate Your Mortgage-Worthiness Before a Banker Does
100(1)
Compare Renting to Owning
100(1)
Over Time, Owning Should Save You Money
101(1)
Renting Pluses
101(1)
How Much of Your Income Should You Spend on Housing?
102(1)
Fixed Rate vs. Adjustable Rate Mortgage
102(1)
I.O. for U?
103(1)
The Costs of Closing
104(1)
Second Mortgages---Pros and Cons
105(1)
Pluses & Pitfalls of Paying Off Your Mortgage
106(1)
Should You Shorten Your Mortgage?
106(3)
Funding Your Own (or Your Child's) Education
109(14)
An Investment That Really Pays
110(1)
Put Your Financial Security First
110(1)
Establishing an Education Fund
111(1)
Using a Traditional or Roth IRA to Save for College
112(1)
Coverdell Education Savings Accounts (ESAs)
112(1)
Qualified Tuition Programs (Section 529s)
112(3)
Pros and Cons of 529 Plans
115(1)
Tax Breaks for Education Expenses
116(1)
The Hope Scholarship Credit
116(1)
Lifetime Learning Credits
116(1)
Mix and Match Carefully
116(1)
The Education-Loan Interest Deduction
117(1)
Patriot Bonds (formerly EE Savings Bonds)
117(1)
Other Options
118(1)
Sorting Out All the Options
119(1)
In Whose Name?
120(3)
Part 3: Investing 101
123(86)
What Are They Up to On Wall Street, Anyway?
125(14)
The Purpose of Wall Street
126(2)
The Primary Market
126(1)
The Secondary Market
127(1)
The Players
128(1)
The Stock Exchanges
128(1)
What's With All the Animal References?
129(1)
The Securities and Exchange Commission (SEC)
130(1)
The Fed's Balancing Act: Dampening Inflation Without Dumping on Us
131(2)
The Problem with Inflation
131(2)
Interest Rates and the Market
133(1)
Buy Side vs. Sell Side
133(1)
Choosing a Broker
134(2)
Traditional vs. Discount
134(1)
Check Out Your Broker's Background
135(1)
SIPC Protection (or What If My Broker Goes Bust?)
135(1)
Placing a Trade with Your Broker
136(1)
Asset Management Accounts
137(2)
Common Stock
139(18)
Own Your Own Business: Investing in Common Stocks
140(1)
But How Am I Going to Make Money?
141(3)
Dividend Payout Ratio
143(1)
Dividend Yield
143(1)
We're Not Talking About Leaky Faucets: Investing Through DRIPs
144(1)
The Truth About Stock Splits
145(1)
Spotting an Excellent Business
145(6)
Durable Competitive Advantages
145(1)
Raise Those Prices!
146(1)
Complimentary Cultural and Demographic Drivers
146(1)
Product Relevance
146(1)
History of Share Repurchases
147(1)
Sensible Management with Reasonable Compensation
148(1)
You Want Them Holding the Bag
148(1)
Open and Honest Communication
148(1)
History of Increasing Dividends
149(1)
Dividends, Interest, and Fixed Charges ``Earned''
149(1)
Little or No Debt
150(1)
Tons of Free Cash Flow
150(1)
A Controlling Shareholder (Well, Sometimes ...)
150(1)
Market Leadership
151(1)
Price
151(1)
Researching Individual Stocks
151(2)
The Invaluable Value Line
152(1)
S&P Stock Guides: Another Great Tool
153(1)
The Best Newspapers for Stock Info
153(1)
All the News That's Fit to Print: Annual Reports
153(1)
If You Own It, You Better Love It (or the Evils of Market Timing)
154(1)
A Word on IPO's, Penny Stocks, and Hot Tips
155(2)
Slow and Steady Wins the Race: Fixed-Income Securities
157(18)
The Importance of the Debt Markets
158(1)
When Do You Get That Groovy Interest Income?
159(2)
Beware the Call Feature
159(1)
Sinkers
160(1)
The Wonderful World of Bond (No, Not James)
161(4)
When Do You Want Bonds in Your Portfolio?
161(1)
How Inflation Erodes Bonds
162(2)
Bond Ratings
164(1)
How to Read a Bond Table
164(1)
Corporate Debt---An Unwise Choice for Small Investors
165(1)
Searching for Treasure
166(2)
How to Buy Treasuries
167(1)
Buying Outstanding Treasuries
167(1)
An Old Favorite: Savings Bonds
168(3)
Patriot Bonds (Formerly EE Savings Bonds)
168(2)
HH Bonds
170(1)
I Bonds
170(1)
Agency-O-Rama
171(1)
CDs: A Viable Alternative to Government Debt
172(1)
Municipal Bonds
172(2)
Calculating Taxable-Equivalent Yield
173(1)
Money Market Funds
174(1)
Preferred Stock: The Hybrid of Wall Street
175(8)
What Do You Get When You Mix Stocks with Bonds?
176(1)
It Just Doesn't Make Sense
176(1)
Bolstering Capital
177(1)
It's a Family Affair
178(1)
What to Look for in a Preferred Stock
178(3)
Cumulative vs. Noncumulative
179(1)
Voting Rights
179(1)
Redemption Rights
180(1)
Participating Provisions
180(1)
Adjustable Rate Provisions
181(1)
Riding with the Top Down: Convertible Preferred Stock
181(2)
Navigating the Mutual Fund Universe
183(14)
What Exactly Are Mutual Funds?
184(1)
Open-End and Closed-End Funds
184(2)
Avoid Load Funds
186(1)
Back-End Loads and 12b-1 Fees
187(1)
Index and Tax-Advantaged Funds
187(1)
Exchange-Traded Funds
188(2)
SPDRs
188(1)
iShares
189(1)
HOLDRs: An Alternative to ETFs
190(1)
What's Out There in the Fund Universe?
191(1)
Why Funds Are a Great Investment Option
191(2)
How to Pick a Winning Fund
193(1)
The Problem with Bond Funds
194(1)
Lifestyle and Tax-Efficient Funds
194(3)
Real Estate Investment Trusts (REITs)
197(12)
The REIT Stuff
197(1)
Advantages of Investing Through REITS
198(2)
Types of REITs
200(1)
Not All REITs Are Alike
201(2)
Residential
201(1)
Retail
202(1)
Office and Industrial
202(1)
Self-Storage
203(1)
Hotel and Resort
203(1)
Health Care
203(1)
Funds from Operations
203(1)
I'll Pass on the Accounting
204(2)
Some Additional Resources
206(1)
Other Types of Real Estate Ownership
206(3)
Part 4: Basic Financial Statement Analysis
209(44)
The Income Statement
211(12)
Sample Income Statement
211(1)
Revenue
212(1)
Cost of Goods Sold
213(1)
Gross Profit and Gross Profit Margin
213(1)
SG&A Expenses
214(1)
Research and Development (R&D)
214(1)
Operating Profit and Operating Profit Margin
214(1)
Income from Continuing Operations
215(1)
Income from Discontinued Operations
215(1)
Nonrecurring vs. Extraordinary Gains and Losses
215(1)
Minority Interest
216(2)
Operating Income Before Taxes
218(1)
Net Income
218(1)
Earnings per Share
218(2)
Basic EPS
219(1)
Diluted EPS
219(1)
The Price to Earnings Ratio (P/E Ratio)
220(1)
Earnings Yield
220(1)
Average Earnings
220(1)
Other Comprehensive Income
221(2)
The Balance Sheet
223(12)
Sample Balance Sheet
223(2)
Current Assets
225(4)
Cash and Cash Equivalents
225(1)
Short-Term Investments
226(1)
Accounts Receivable
226(1)
Accounts Receivable Turnover
226(1)
Average Days Outstanding
227(1)
Inventory
227(1)
Inventory Turnover
228(1)
Inventory Processing Period
228(1)
Prepaid Expenses
228(1)
Current Liabilities
229(1)
Accounts Payable
229(1)
Current Portion of Long-Term Debt
229(1)
Measuring Liquidity
229(1)
Current Ratio
229(1)
Quick Test Ratio
230(1)
Property, Plant, and Equipment
230(1)
Long-Term Debt
231(1)
Debt to Equity Ratio
231(1)
Shareholders' Equity
232(3)
Return on Equity (ROE)
232(1)
Maximum Sustainable Growth Rate
232(1)
Return on Assets
233(2)
The Cash Flow Statement
235(8)
Sample Cash Flow Statement
235(2)
The Sections of the Cash Flow Statement
237(3)
Cash Flows from Operations (CFO)
237(1)
Cash Flows from Investing Activities (CFI)
238(1)
Cash Flows from Financing Activities (CFF)
239(1)
Increase or Decrease in Cash and Cash Equivalents
240(1)
Free Cash Flow (FCF)
240(1)
A Word on EBITDA
240(3)
The Footnotes
243(10)
Description of Operations
244(1)
Legal Proceedings
244(2)
Operating Leases
246(1)
Reliance upon Key Customers
247(1)
Related-Party Transactions
248(2)
Pension Obligations
248(2)
Stock Option Expense
250(3)
Part 5: Fundamental Investing Strategies
253(44)
Always Let Price Be Your Guide
255(12)
Price Determines Results
255(1)
Valuing a Business
256(2)
Spotting Speculative Bubbles
258(1)
Ben Graham's Margin of Safety
259(1)
Using Dollar Cost Averaging to Lower Your Cost Basis
260(2)
Reducing Trading Costs
262(1)
How to Think About a Falling Stock Market
263(4)
Asset Allocation
267(10)
Remember Your Objectives? There's an Asset Mix to Achieve Them!
268(4)
Scenario 1
269(1)
The Result
269(1)
Scenario 2
269(2)
Scenario 3
271(1)
Concentrating Your Assets
272(1)
The Result
273(1)
A Word on Rebalancing
273(1)
Just-in-Case Cash
274(3)
Mattresses Are for Sleeping, Not Stashing
275(2)
Evaluating Investment Performance
277(10)
Total Return
278(1)
Calculating Simple Return
278(1)
Calculating Compound Annual Growth Rate
279(2)
Absolute vs. Relative Performance
281(1)
Choosing a Benchmark for Comparison
281(2)
S&P 500
282(1)
Dow Jones Indices
282(1)
Wilshire 5,000
282(1)
Russell 2,000
282(1)
NASDAQ Composite
282(1)
NYSE Composite
283(1)
Morgan Stanley International Europe, Australia, and Far East Index (MSCI EAFE Index)
283(1)
Grading Your Investment Advisor
283(4)
Honors Your Risk Profile
283(1)
Ample Returns on a Multi-Year Basis
283(1)
Fee-Based
284(3)
Keeping Uncle Sam's Greedy Mitts Off of Your Assets
287(10)
Capital Gains Tax
287(2)
The Wash Sale Rule
288(1)
Dividend Taxes
289(1)
Big Changes in Estate Taxes!
289(1)
The Estate Tax Repeal ... Not So Appealing?
290(2)
They Can Tax That?!
290(1)
Watch That Generation Gap
291(1)
Tax-Saving Alternatives
292(1)
Gimme Shelter
292(1)
QTIP: No, Not the Kind You Stick in Your Ear
292(1)
Charitable Trusts
292(1)
Other Ways to Reduce Estate Taxes
293(4)
Life (Saver!) Insurance
293(1)
The Gift That Keeps on Giving
293(1)
Just a Little Token---Gifts to Minors' Trusts
294(1)
Personal Residence Trust
294(3)
Part 6: Advanced Investing Strategies
297(52)
Hedging Your Options
299(14)
Weighing Your Options
299(1)
Puts and Calls
300(1)
Hedge Your Bet with a Call
301(1)
Prevent Portfolio Wipeout with a Put
301(1)
How Did This Get Started?
301(1)
Risk-Loving Speculator Seeks Cautious Hedgehog
302(1)
In the Money
303(1)
Reading an Option Table
304(2)
Options Galore
306(1)
Most Active Contracts
306(1)
Selling Short vs. Trading Options
306(1)
Risky Business
307(1)
Option Strategies That Protect Your Stock Positions
308(1)
Using Puts for Downside Protection
308(1)
Stock Index Options
309(1)
S&P Index Options
309(1)
Hedge Strategies for Index Options
310(1)
The Braveheart of Wall Street
310(1)
LEAPS
311(2)
Fancy Futures
313(10)
What Is a Commodity?
314(1)
It All Began with Farmers
314(1)
How a Future Differs from an Option
315(1)
How Margins Work
316(1)
Using Futures to Offset Uncertainty
317(1)
Financial Futures
318(1)
Options on Futures---Oy!
319(1)
Spread Strategies for Speculators
320(1)
Program Trading
320(1)
Gold Nuggets
321(2)
Precious Metal Companies and Funds
322(1)
Alternative Investments
323(26)
How Regular Folk Discovered Alternative Investments
323(1)
Hedge Funds
324(1)
Venture Capital and LBO Funds
325(1)
The Private Equity Fund of Funds
326(2)
What You Need to Qualify for a Fund of Funds
326(1)
How Limited Partnership Works
327(1)
Pros and Cons of LP Investments
328(3)
Appendixes
A. Useful Investing Information
331(6)
B. Glossary
337(8)
C. How to Avoid Turning the Stock Market into Your Own Personal Emotional Roller Coaster
345(4)
Index 349

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