Investment
Fundamentals
Do you want to experience how money
works for you?
Topic Learning Outcomes
1. Understand they key roles of that risk and return play an investment
decisions;
2. Identify the benefits of investments
3. Know and realize the need to invest
4. Identify the types of investment
5. Understand the investment portfolio; and differentiate the different
investment strategies
What is an Investment?
• An investment is a sacrifice of present
consumption with the expectation of the
future will be better. In a general sense, it is
an allocation of money in different assets
with the expectation that in the future the
value of these assets will be higher and
generate some return.
• In a more simple sense, investment is the
use of money with an expectation to earn
more money.
Why Invest?
1. Having a savings account isn’t enough
Saving money is important, but it’s only part of the story. Smart
savers start by building sufficient emergency savings within a savings
account or through investment in a money market account. But after
building three to six months of easy-to-access savings, investing in the
financial markets offers many potential advantages.
Why Invest?
2. Financial security
Financial security is the mental peace and the feeling of
confidence that stems from the belief that the needs of your future and
your family's future are taken care of.
An example could be a costly life event such as a major health
crisis or home destruction by a cyclone or fire. Having an investment
ensures that you are financially secured to meet such unforeseen events.
Why Invest?
3. Financial independence
Your investment enables you to be independent
and not rely on the money of others in any event
of financial hardship. It ensures that you have
enough money to pay for your needs and wants
for the rest of your life without having to rely on
someone else or having to work in your old age
Why Invest?
4. Build your wealth
People invest with the view to build their
wealth. This means that they save and then
invest their savings over time. In this
process, the proceeds from the investments,
whether they are dividends or interest
earned, can be reinvested into the same
financial instrument or even something
else. This way you too can start investing
and continue building your wealth
Why Invest?
4. Attain your goals
It is important that you list down your goals and how
much money you need to achieve that goal. Your goals could
be short term, medium or long term in nature. Investing your
money according to your goals will enable you to grow your
money and achieve your goals quickly without you having to
work all your life.
Tips on Investing
1. Invest early, start now
With each day you wait or keep your money at home, you lose
the opportunity to build your wealth from the investment
opportunities that arise.
Tips on Investing
2. Reinvest income
Each time you reinvest income earned from your investments, you
increase your total investment which at a given interest rate, earns even more
income the next time around.
3. Invest at a good interest rate or with a company that is performing
well and paying good dividends
The higher the interest rate (also referred to as “rate of return”), the
more income you earn which can then be reinvested. However, as a general
rule, investments with high returns tend to be more risky. Therefore, the
appropriate risk for you depends on how much risk you are prepared to take.
Tips on Investing
4. Diversify your investment
Don’t put all your eggs in one basket! Put your money into a variety of
investments to minimise your risks of investing. In the event where one of
your investments is not doing so well and incurs a loss, you could offset this
loss with your other investments earning you a positive or much higher
return. In this way you are able to reduce the losses in your investments.
Remember, investing is all about growing your money to achieve your
goals, but you must invest cautiously
Types of Investments
1. Bonds –refers to the securities that are founded on debt.
When you purchase a bond, you are lending out your money to a
company or government. In return, they agree to give you interest on
your money and eventually pay you back the amount you lent out.
If you are buying bonds from a stable government your
investment is virtually guaranteed, or risk-free. The safety and stability
however, come at a cost. Because there is a little risk, there is little
potential return. As a result, the rate of return on bonds is generally
lower than other securities.
Types of Investments
2. Stocks –a share in the ownership of a company. Stocks represents
claim on the company’s assets and earnings. As you acquire more stocks
your ownership stake in the company becomes greater.
While bonds provide a steady stream of income, stocks are
volatile, which means they fluctuate in value on a daily basis. Compared
to bonds, stocks provide relatively high potential returns.
Difference between BONDS and STOCKS
Types of Investments
Two Main types of stocks
1. Common Stock – it represents the ownership in a company and a claim
(dividend) on a portion of profits. Investors get one vote per share to
elect the board members who oversee the major decisions made by
management. It yields HIGHER returns than almost every other
investment. This higher return comes at a cost since common stocks
entail the MOST RISK.
2. Preferred Stock – represents some degree of ownership in a company but
usually doesn’t come with the same voting rights. With preferred stocks
the investors are usually guaranteed a fixed dividend forever.
Difference between COMMON and
PREFERRED STOCKS
Types of Investments
3. Mutual Fund – it is the
collection of stocks and bonds.
When you buy a mutual
funds you are pooling your
money with a number of other
investors which enables you to
pay a professional manager to
select specific securities for
you.
Types of Investments
4. Time Deposit – it is a type of
deposit product that banks offer
other than savings and demand
deposit products.
It has higher the yields
than savings deposits and
demand deposits. That is
because time deposit has a term
of deposit where the maturity of
your investment is determined.
Investment Portfolio
• It is a combination of different
investment assets mixed and
matched for the purpose of
achieving an investor’s goals.
• It includes any asset you own-
from real items such as art and
real estate to equities, fixed
income instruments and their
cash and equivalents
Investment Strategies
Investment Strategies
1. Active and Passive Strategies: These investment strategy helps
investors in making a decision by focusing on active and passive
investment policies. Some investment policies are non-moving and
become stagnant after a certain period of time.
2. Growth Investing: Growth investing is one of the investment
strategies which are applied by the investor in case they are opting
and focusing for the growth of their investment. This strategy
focuses on the growth rate of the individual.
Investment Strategies
3. Value Investing: Value investing is different from the growth
investment strategy. In this type of strategy, the value of the stock is
given more emphasis.
4. Income Investing: This type of investing strategy is based upon the
income or returns from the investment. The income from the investment
is a not always constant but the income or returns can be higher if the
investment is made strategically.
5. Indexing: Indexing is also an investment strategy that also attempts
to generate the market index rate of the investment. This is an index that
shows the correct information regarding the investment strategies to be
made.
Investment Strategies
5. Contrarian investing is choosing to put your money into assets that
go against the grain of market sentiment. When the stock market is
selling off, contrarian investors jump in and buy—or they sell when
there's a flurry of buying
•THANK YOU
