The document discusses different types of investments including fixed income assets like stocks and bonds, alternative investments like mutual funds and currencies, and other assets like real estate, commodities, and insurance. It compares the advantages and disadvantages of each type of investment, such as the risks and returns of stocks versus the more stable but lower returns of bank deposits. The goal is to educate investors on properly diversifying their portfolio across different asset classes based on their risk tolerance and time horizon.
The document discusses different types of investments including fixed income assets like stocks and bonds, alternative investments like mutual funds and currencies, and other assets like real estate, commodities, and insurance. It compares the advantages and disadvantages of each type of investment, such as the risks and returns of stocks versus the more stable but lower returns of bank deposits. The goal is to educate investors on properly diversifying their portfolio across different asset classes based on their risk tolerance and time horizon.
The document discusses different types of investments including fixed income assets like stocks and bonds, alternative investments like mutual funds and currencies, and other assets like real estate, commodities, and insurance. It compares the advantages and disadvantages of each type of investment, such as the risks and returns of stocks versus the more stable but lower returns of bank deposits. The goal is to educate investors on properly diversifying their portfolio across different asset classes based on their risk tolerance and time horizon.
The document discusses different types of investments including fixed income assets like stocks and bonds, alternative investments like mutual funds and currencies, and other assets like real estate, commodities, and insurance. It compares the advantages and disadvantages of each type of investment, such as the risks and returns of stocks versus the more stable but lower returns of bank deposits. The goal is to educate investors on properly diversifying their portfolio across different asset classes based on their risk tolerance and time horizon.
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SELF-LEARNING HOME TASK (SLHT)
Subject: BUSINESS FINANCE Grade:12 Level:12 Quarter:2 Week: 9&10
MELC : Competency Code: ABM_BF12-IVm-n-23 *compare and contrast the different types of investments ABM_BF12-IVm-n-25 *measure and list ways to minimize or reduce investment risks in simple case problems
Name ___________________________________ Section ________ Date __________
School: Compostela National High School-DayClass District: COMPOSTELA A. Readings/Discussions
The word investment brings forth visions of profit, risk, speculation, bankruptcy and wealth. The dramatic changes in securities market, the proliferation of new investment products resulting from financial engineering, the continuous changes in the tax rules are examples of additional factors that investors must consider in developing and implementing strategies. Likewise, it would be best to remember that the investment medium or vehicle must ensure that the money will be available when it is needed and the investment money should grow because a peso’s real value today is greater than a peso’s value tomorrow in a world of inflation.(Bus. Finance Principles and Application,2017)
Lesson 5: Types of Investment
What is investment? 1. Investment opportunities should be grabbed only when you have extra resources available for such, but it does not always mean that it should always be grabbed. If you are only operating within your means, learn to prioritize; investment can take a back seat first. After all, these opportunities are not always once in a lifetime. If you missed one today, you could grab the next one soon enough. You just need to keep your eyes open. http://gcrcloud.io/2018/11/1 4/how-to-accurately- measure-the-roi-of-unified- communications/
1. Investment should not be your main source of income. Unless you are a stockbroker, an insurance salesman. Or an investment banker, you should not heavily rely on the income coming from your investment. One good reason is that your investment generate income and/or cash flows that are largely independent from your main line of business. Heavy reliance on the inflows coming from these assets would create a ‘feast or famine’ condition. This means heavily relying on the resources that these assets might generate, given that they do not produce regular cash flows, might make you very prosperous one moment and then very unfortunate the next.
2. Investments require additional risk-taking. Investments are quite risky asset, a
person planning to invest must be able to learn how to take risks. It is from these risks that the investor earns.
Different Types of Investments will be grouped into three (1) fixed income and equities (2) alternatives to fixed income and equities, (3) other investment assets 1. Fixed income and equities Investment Type Advantages Disadvantages Stocks (Equity) “Type of security that ·Unlimited Upside · No guaranteed returns. signifies ownership in a · Riskiest of all assets (can corporation and represents lose even more than 50% a claim on part of the of their money in one day) corporation’s assets and earning” Bank Deposits (Fixed Income) “Money placed ·Known income based on · Lower interest income vs. into a banking institution outstanding principal and Bonds current interest rate for safekeeping” · Settlement risk if the - common type of · Shorter, if any, holding bank closes. investment period vs. bonds - the availability of funds also depends on the investment opened. Types of Bank Deposit · Current account/ Checking account - do not earn interest. · Savings account - earns interest but not that significant, but the most common among individuals. · Time deposit account - earn the highest interest rate. It is not always available for withdrawal. It is evidenced by a certificate of deposit which can be bought or sold by the depositor themselves. Bonds (Fixed Income) “Debt investments where · Known periodic · If not held until maturity an investor loans money to payments for a certain and pre-terminated, an entity which borrows period investor can gain or lose depending on the prevailing the funds for a defined · Cannot lose money if period of time at a variable bond investment is held interest rates at the time of or commonly, fixed interest until maturity pre-termination. If interest rate” rates are higher, investor in bonds can lose in the pre- termination
2. Alternatives to fixed income and equities
Investment Type Advantages Disadvantages Mutual funds “Give small investors “An investment that is access to professionally · Pay management fees made up of a pool of funds managed, diversified · Values can also fluctuate collected from many portfolios of equities, bonds just like the stock market investors for the purposes and other securities, which of investing in stocks, would be quite difficult (if bonds, and similar assets” not impossible) to create - can be short or long term with small amount of capital” Unit Investment Trust Fund (UITF) · Same as mutual funds. · No shareholder rights for investors such as dividends “Similar to a mutual fund · Easier access because and voting rights but is managed by banks clients can open an account in any branch of the bank near them. · No entry and management fees.
Management Fee- the amount clients pay to the professionals who manage their mutual funds, normally a certain percentage of portfolio value.
Dividends - distribution of the company’s income to its shareholders.
Voting Rights - right to be heard on certain policies that the company wants to implement. 3. Other investment assets Investment Type Advantages Disadvantages Currencies “Generally accepted form · Largest market in the · Volatile and trades 24- of money, including coins world in terms of trading hours a day (must be and paper notes, which is volume, so much liquidity closely monitored) issued by government and · Unlike stocks, · Generally, uses margin circulated within an commodities, etc., currency trading which allows clients economy” (i.e. USD, EUR, itself is a medium of to be more than their JPY) exchange which people capital (may also be an can use to transact advantage) Commodities “A basic good used in · Natural hedge against · Same as currencies commerce that is inflation. interchangeable with other · Negatively correlated · Impractical to invest commodities of the same with equities and bonds directly considering type” (i.e. Gold, nickel, oil) (may be used for storage, transportation and diversification) insurance costs involved · Hedge against geopolitical risks Real Estate “Land and any ·Generally, appreciates ·Huge capital needed, improvements on it” (i.e. overtime because land get financing can be difficult land, house and lot, scarce condominiums) · Maintenance of the · Have relatively low property needed to correlations with other preserve its value asset classes (may be used for diversification) ·Illiquid or difficult to sell · Can be a source of recurring rental income · May also be a hedge against inflation-linked rent escalation clauses Insurance “A contract (policy) in which ·Give the insured · Insurance premiums may an individual or entity individual/entity the be costly cash/capital to deal with receives financial unforeseen adverse · On some of traditional protection or insurance plans, no reimbursement against financial consequences sickness/death until a losses from an insurance · May provide certain tax certain age may mean not company (i.e. Life benefits (i.e. tax getting any benefits at all insurance, educational deductibility, tax-free (that’s why VUL’s are now plan, VUL) provisions) very prevalent) · Some insurance companies can go bankrupt (i.e. College Assurance Plan) if companies fail to factor significantly adverse unforeseen circumstances Liquidity - ability to be converted into cash, the higher the liquidity the better. Margin Trading - allows clients to trade more than their capital. It can magnify both earnings and losses. Inflation - general increase in prices. Hedge - investment that reduces the risk of adverse price movement in an asset. Diversification - process of investing in different kinds of assets to lessen exposure in market/price volatility. Geopolitical risks -” risks of one country’s foreign policy influencing or upsetting domestic, political and social policy in another country or region” (source: Columbia Threadneedle Blog. (2016) Correlation - how price of an asset moves with respect to another asset (i.e. positive correlation if both assets move in the same direction, negative correlation if both assets move in opposite direction) Escalation Clause - agreement to raise prices in the future depending on certain circumstances (i.e. increase in inflation leading to higher rental rates). Insurance Premium - the amount paid on a regular basis to the insurance company in return for the insurance/protection provided. VUL - Variable Universal Life Insurance or a life insurance that offers both death benefit and investment features.
Where to Invest? → the amount of cash should be considered. The investor must invest within his means. Not all his extra resources must be used to buy investment, because there will always be circumstances in which cash will be needed in case of emergency. → the risk inherent in the investment should be considered. Higher risk entails higher return. Deposits are the least risky investments, but they earn the least, too. Real Estate investments do earn a lot, but they are so risky that they could even cause a national economy crash. We must not put all the money in one investment, so as to spread or diversify risk. The good thing with managing risk or diversifying our investment, is if ever we are not successful in one of the investment opportunities that we grabbed, we will still have other investments left which would still help us earn. → We should consider our intent. We should ask ourselves if the intent is short term or long term because that would greatly influence the kind of investment that he needs to buy. If we would like to earn for a shorter term, maintaining a short-term deposit is enough. We could also purchase some stocks, and then immediately sell them if the price increases. Stocks and bonds can also be held as long-term investments. Bonds pay regular interest, and stocks do earn dividends.
B. Exercise 1: Activity 1.1: “My weekly budget” Direction: Answer the following questions and compute your daily expenses for a week.
Exercise 2: Activity 1.2: Matching type Direction: Match the investment asset in column A with its advantage and disadvantage in column B by writing the capital letter on the left side of column A.
(A) Investment Asset (B) Advantage/Disadvantage
____ 1. Stocks A. On some of traditional plans, no sickness/death until a certain age may mean not getting any benefits at all ____ 2. Bank Deposit B. Shorter, if any, holding period vs. bonds
____ 3. Mutual Funds C. Can be a source of recurring rental income
____ 4. Real Estate D. Riskiest of all assets (can lose as much as
50% of their money in one day) ____ 5. Insurance E. Pay management fees
C. Assessment/Application/Outputs:
True or False
On the space provided, write TRUE if the idea being expressed is correct and FALSE if otherwise.
________ 1. investments generally earn passive income
________ 2. Time deposit accounts do not earn interest.
________ 3. Banks issue bank statement on savings deposit accounts.
________ 4. Insurance are set up for some specific purpose at some certain time in the future.
________ 5. Mutual funds generally earn more than savings account.
________ 6. Bonds earn dividends.
________ 7. Dividends are always declared regularly
________ 8. Stocks are generally riskier than bonds.
________ 9. Real Estate investments earn rents
________ 10. Hard assets are tangible assets.
D.Suggested/Enrichment/Reinforcement/Activity/ies : Case Analysis
Elison is nearing his retirement. He was able to save up to a significant amount of
money and is planning to invest it to earn something when he has already retired. After considering a lot of factors, he came down with two choices; buy stocks or construct a building to be rented out to others as a dormitory.
Which option would work best for Eison and why?
References: https://businessjargons.com/financial-market.html https://www.wallstreetmojo.com/financial-institutions/ Arthur S. Cayanan and Daniel Vincent H. Borja, 2017 Business Finance First Edition, Manila Philippines The Commission on Higher Education in collaboration with the Philippine Normal University: Teaching guide for Senior High School,
