LEARNING MODULE # 5

MR. ARISTOTEL L. VINCA JR., LCB

In this unit, the standards are:

CONTENT STANDARD

The learner demonstrates an understanding of the definition, purpose, kinds,

advantages, and disadvantages and the risks of investment.

PERFORMANCE
STANDARD
The learner is able to:
a. Identify the types of investments particularly bank deposits, insurance, real estate,
hard assets, mutual funds, and stocks and bonds.
b. Indicate the advantages and disadvantages of each type of investment.
c. Explain the risks inherent in each type of investment.

FORMATION STANDARD

The learner shall manifest the SWSSMI core values: academic excellence,
moral uprightness, and service to the community.
The learner acts as trustworthy stewards of God’s abundant blessings.

For Module 5, we will have the following and learning targets. At the end of the lesson,
check the column that best describes your assessment of your own learning relative to the
given learning targets.

I understand and I I understand and I I am beginning to I don't understand

can teach someone can do this by understand this yet
else myself with help
I can compare and
contrast the different
types of investments.
I can measure and list
ways to minimize or
reduce investment risks
in simple case problems.

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 To make our learning more meaningful, here are some expectations from you and your
parents/guardian as we journey together on this module.

Your parents/guardians are encouraged to…

You are expected to…
1. Provide a conducive learning
1. Read everything carefully and environment.
thoroughly. 2. Provide the materials needed for the
2. Always follow the instructions. activity.
3. Finish each activity before proceeding to 3. Assist you in performing learning tasks.
the next. 4. Monitor your progress in answering and
4. Take down notes using note taking performing learning tasks.
strategy used in the module. Process 5. Give feedback/response on your progress
questions will always be asked to check in answering and performing learning
your understanding. tasks.
5. Use a regular and business dictionary to
look up the meaning of unfamiliar words.
6. Maximize your learning resources to
help you work more efficiently and to
enhance your learning.
7. Consult your teacher if you need to
clarify or verify something about an
activity.
8. Follow the schedule of the activities,
remind yourself of deadlines. Read in
advance when necessary.
9. Find time to relax and take a break.
10. Have fun learning.

To keep us all healthy and always ready to learn, here are some of the “home mode
reminders” that we can practice.

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 In Module 4, we discussed simple and compound interest, time value of
money, loan amortization tables, and described the risk-return trade-off.
This Module 5 will enable you as a financial manager/student to understand different
types of investment.

Investment helps us earn and at the same time exercise our business and
entrepreneurial skills to be keener about the different business opportunities that area
available around us. It is not enough for a person to have enough cash or assets; part
of being financially mature is having that careful observation and being able to grab
different opportunities to earn.

Pre-Test

Multiple Choice. Encircle the letter of the best answer.

1. Which of the following investments do not earn interest?

a. Bonds c. Savings account
b. Current account d. Time deposit
2. Which of the following is not an example of a deposit investment?
a. Current account c. Savings
b. Mutual funds d. Time deposit
3. The person that manages a person’s mutual fund
a. Bondholder c. Creditor
b. Broker d. Stockholder
4. These payments are needed to maintain an insurance account
a. Interest c. Premium
b. Dividends d. Capital gains
5. What is the income earned on a bond?
a. Capital Gains c. Interest
b. Dividends d. Premium
6. What do you call an owner of a company’s stocks?
a. Bondholder c. Creditor
b. Broker d. Stockholder
7. What is the income earned on a stock?
a. Deposit c. Interest
b. Dividend d. Premium

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8. What is the strategy to earn short-term income from stocks?
a. Buy low sell low c. Buy low sell high
b. Buy high sell high d. Buy high sell low
9. These are tangible assets held as investments
a. Deposits c. Hard assets
b. Funds d. Stocks and bonds
10. What is the income earned on a building?
a. Credit c. Interest
b. Dividend d. Rent

Let’s Begin with the Lesson!

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. (Business Finance Principles and Application, 2017)

Warm-up Activity

Activity 1: “My weekly budget”

Direction: Answer the following questions and compute your daily
expenses for a week.
1. Where does my money came from?

2. Where does my money go?

3. How much do I save?

Allowance Expenses Savings
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
4. Where do I put my savings?

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 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.

2. 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
generates 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.

3. 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, and (3) other investment assets.
1. Fixed income and equities
Investment Type Advantages Disadvantages
Stocks (Equity)  Unlimited Upside  No guaranteed returns
“Type of security that  Riskiest of all assets (can
signifies ownership in a lose even more than 50%
corporation and represents a of their money in one
claim on part of the day)
corporation’s assets and
earning”
Bank Deposits (Fixed  Known income based on  Lower interest income vs.
Income) “Money placed into outstanding principal and bonds
a banking institution for current interest rate  Settlement risk if the
safekeeping”  Shorter, if any, holding bank closes
o Common type of period vs. bonds
investment
o 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
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 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)  Known periodic  If not held until maturity
“Debt investments where an payments for a certain and pre-terminated,
investor loans money to an period investor can gain or lose
entity which borrows the  Cannot lose money if depending on the
funds for a defined period of bond investment is held prevailing interest rates
time at a variable or until maturity at the time of pre-
commonly, fixed interest 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 access  Pay management fees
“An investment that is made to professionally managed,  Values can also fluctuate
up of a pool of funds diversified portfolios of just like the stock market
collected from many equities, bonds, and other
investors for the purposes of securities, which would be
investing in stocks, bonds, quite difficult (if not
and similar assets” impossible) to create with
- can be short or long term small amount of capital”
Unit Investment Trust  Same as mutual funds  No shareholder rights for
Fund (UITF)  Easier access because investors such as
“Similar to a mutual fund but clients can open an dividends and voting
is managed by banks account in any branch of rights
the bank near them
 No entry and
management fees

Relevant Terminologies

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.

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 3. Other investment assets
Investment Type Advantages Disadvantages
Currencies  Largest market in the  Volatile and trades 24-
“Generally accepted form of world in terms of trading hours a day (must be
money, including coins and volume, so much liquidity closely monitored)
paper notes, which is issued  Unlike stocks,  Generally, uses margin
by government and commodities, etc., trading which allows
circulated within an currency itself is a clients to be more than
economy” (i.e. USD, EUR, medium of exchange their capital (may also be
JPY) which people can use to an advantage)
transact
Commodities  Natural hedge against  Same as currencies
“A basic good used in inflation
commerce that is  Negatively correlated  Impractical to invest
interchangeable with other with equities and bonds directly considering
commodities of the same (may be used for storage, transportation,
type” (i.e. Gold, nickel, oil) diversification) and insurance costs
 Hedge against involved
geopolitical risks
Real Estate  Generally, appreciates  Huge capital needed,
“Land and any overtime because land financing can be difficult
improvements on it” (i.e. get scarce  Maintenance of the
land, house and lot,  Have relatively low property needed to
condominiums) correlations with other preserve its value
asset classes (may be
 Illiquid or difficult to sell
used for diversification)
 Can be a source of
recurring rental income
 May also be a hedge
against inflation-linked
rent escalation clauses
Insurance  Give the insured  Insurance premiums may
“A contract (policy) in which individual/entity the be costly
an individual or entity cash/capital to deal with  On some of traditional
receives financial protection unforeseen adverse insurance plans, no
or reimbursement against financial consequences sickness/death until a
losses from an insurance  May provide certain tax certain age may mean
company (i.e. Life insurance, not getting any benefits
benefits (i.e. tax
at all (that’s why VUL’s
educational plan, VUL) deductibility, tax-free
are now very prevalent)
provisions)  Some insurance
companies can go
bankrupt (i.e. College
Assurance Plan) if
companies fail to factor
significantly adverse
unforeseen
circumstances

Relevant Terminologies
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.

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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.

What I Have Learned

Activity 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 (B) Advantage/Disadvantage

Asset
____ 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

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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 we need 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.

What You Will Do

Activity 3

Direction: Answer the question briefly.

Let us say you have Php1,000,000 today which you can invest for the next
10 years, where will you put it? Choose at least 2 types of investment and explain
why?

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 Final Assessment: Post-Test

True or False
On the space provided, write TRUE if the idea being expressed is correct and FALSE if
otherwise.
________ 1. Bonds earn dividends.
________ 2. Hard assets are tangible assets.
________ 3. Real estate investments earn rents.
________ 4. Stocks are generally riskier than bonds.
________ 5. Dividends are always declared regularly.
________ 6. Time deposit accounts do not earn interest.
________ 7. Investments generally earn passive income.
________ 8. Mutual funds generally earn more than savings account.
________ 9. Banks issue bank statement on savings deposit accounts.
________ 10. Insurance is set up for some specific purpose at some certain time in the future.
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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 Elison and why?

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 Congratulations, you had just finished your module 5! After studying our lesson, kindly
write the things you learned, found interesting, and question as your learning summaries.

Based on our lesson, what are your new learning and realizations as a child of God?
Below, write your lesson’s reflection through a prayer. A related Bible verse is also provided to
help and guide you more on the prayer you will formulate. Together, let us do things toward
His Holiness because we are precious in His eyes.

“Whoever increases wealth by taking interest or profit from the poor amasses it for another,
who will be kind to the poor.”
Proverbs 28:8

We would like to hear from you and your parent/guardian comments and
observations of this lesson’s module. If you have suggestions, please feel free to write it in the
box provided. Remember, we are partners in this learning. Your feedbacks will be highly
appreciated.

Comments:
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Suggestions:
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___________________________--_______________________

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This part is for the parent or the attending adult:

Kindly write some of your observations on your child’s learning/study habits this week. Include
also your suggestions or if you have questions, feel free to write them here also.

Observation:
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____________________________________________________________________________
Question (if there’s any):
____________________________________________________________________________
____________________________________________________________________________
Suggestion/s:
____________________________________________________________________________
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Cellphone No.

REFERENCES:
Yumang, K., et.al, (2016). Exploring Small Business and Personal Finance. Phoenix
Publishing House Inc., Quezon City, Phils.
Cayanan, A. & Borja D. (2017). Business Finance. Rex Bookstore. Manila, Phils.
Fajardo, F. & Manansala, M. (2008). Money, Credit and Banking. National Bookstore,
Mandaluyong City, Phils.
Morales, J. (2020). Module Icon.

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