BUSINESS FINANCE

AIRA LOVELLE CONZON WEEK 2 4TH QUARTER

ABM-HERMES

ACTIVITY 1. Advantages and Disadvantages of Different Types of Investment

Type of Advantages Disadvantages

Investmen
t
Bank  Bank Accounts are Insured, a bank  Low Returns, The interest
Deposit account is one of the safest places you you earn in a bank account
can invest your cash is typically lower than the
 Certainty of Future Funds,  Bank returns of other
accounts avoid market fluctuations that investments. When you
are typical of other investments, such as factor in income taxes on
stocks, and typically pay fixed interest. interest, your money might
This certainty is an advantage when you fail to keep up with
need a specific amount of money within a inflation, or the gradual
short time frame, such as for a down increase in the prices of
payment on a house, or if you need to goods and services
preserve your capital for emergencies  Account Fees, Banks
 sometimes charge fees that
can exceed the interest rate
on your account and eat
away at your investment.
Some fees might come
standard with a particular
account, such as a
maintenance fee or ATM
fees
 Deposit accounts usually
pay lower rates than "risk-
free" investments such as
Treasury bonds
Insurance  Provides economic protection,  It doesn’t compensate all
 Shares risk types of losses which caused
 Maintain standards of living business to insured by
 Encourages savings insurance company
 Eliminate dependency  It takes more time to
 Grants Loan provide financial
 Creates employment opportunities compensation
 Promotes foreign trade  Although insurance
 Helps to operate business smoothly  encourages savings, it
 doesn't provide the facilities
that are provided by bank
 It intentionally tries to
compensate as less as
possible to the sufferer with
the aim of maximizing
profit rather than
maximizing well-being of
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the insured
 It may lead to the crimes in
the society as the
beneficiaries of the policy
may be tempted to commit
crimes to receive the insured
amount
 Sometimes, the total amount
of premium might be higher
than the policy amount
receivable on maturity

Real  Real Estate Can Be Easier to  Real Estate Has Higher

Estate Understand- Real estate, on the other Transaction Costs,
hand, involves the purchase of physical when purchasing shares of a
property and most people are familiar with stock, the transaction cost
real estate to some degree. Investing in real for the trade is very low,
estate can be much easier to understand often just a few dollars. But
than complex investments developed by when purchasing real estate,
mathematicians. the transaction costs are
considerably higher.
 Real Estate Is Improvable, after you buy
a stock, you hold it for a period of time and
hopefully sell it for a profit. The success of  Real Estate Has Low
the stock depends on company Liquidity,
management and their corporate success, many investments are
which is out of your control. highly liquid, and can be
bought and sold for a profit
in a fraction of a second, as
 Real Estate is a Hedge Against Inflation, with high-frequency stock
real estate is one of the few assets that trading. But real estate
reacts proportionately to inflation. As investments are comparably
inflation goes up, housing values and rents illiquid, because properties
go up. can’t be quickly and easily
sold without a substantial
 Real Estate Properties Exist in an loss in value.
Inefficient Market, unlike the stock
market, the real estate market is full of  Real Estate Requires
inefficiencies. There is a lack of Management and
transparency relating to individual Maintenance
property values and also the strength of Once an investor purchases
different markets, which means that real a property, it must be
estate investments have the potential for rehabbed, maintained, and
very high profits. managed. Financing
payments, real estate taxes,
insurance, management
 Real Estate Can Be Financed and fees, and maintenance costs
Leveraged, can add up quickly,
of course, you can technically purchase especially if the property
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stocks and other assets using debt, but this
can be very risky because the financing is
not to purchase a hard asset.
Hard  Hard Assets is considered very valuable
Assets because they are considered as the raw
material to manufacture the goods or
services.
 It is comparatively simple to understand as
compared to soft assets. One can just buy a
property and use it for his purpose or rent
it out or lease out and also anticipate future
earnings or vacancies. So such assets
classes are simple in how it works when
WEEK 2 4TH QUARTER
sits empty for extended
periods of time.
 Real Estate Markets Have
Significant Inefficiencies,
the most aggressive
investors purchase real
estate based on minimal
information, and don’t know
whether they’ve made a
good deal until paying for
the property and then
inspecting the property.
 Real Estate Creates
Liabilities
Real estate investing
involves taking on a great
deal of financial and legal
liability.
All the disadvantages
mentioned above add to the
liability a real estate
investor takes on when
purchasing, financing,
rehabbing, leasing,
managing, and maintaining
a property. Even though
investment properties may
be in a corporation, there are
often personal guarantees
associated with the business,
and the risk of losing the
income and profits
generated by the company.
 Hard assets like real estates
are linked to interest rate
risk. The mortgage becomes
more expensive, with a rise
in interest rates. Also, with a
rise in interest rates, the
price of the property begins
to fall.
 These are non-exclusive and
can be easily implemented
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compared to soft assets like bonds or or bought by any company.
equities where the value is dependent on It does not help in
macro-economic factors. Moreover, we  maintaining a company’s
cannot anticipate how it will act. customer base.

 Its value cannot be wiped out overnight  Long term hard assets don’t
like that of soft assets. When share prices have the same amount of
fall in the bearish market, prices of stock liquidity that a soft asset
can go down equivalent to near zero. The will have. Thus,
prices of these assets can come down with convertibility to cash and
market fluctuation, but it will not get cash equivalent is minimal
wiped out overnight. in terms of hard assets.

 It provides scope for long term gain in the

form of appreciation and other rental  It has transaction cost of
incomes, e.g., real estate revenue. hard assets are
comparatively higher than
that of soft assets. The high
 It provides a kind of regular income, which cost of the asset makes it
is common for real estates; and is attractive difficult to turn a profit over
and stable too. a short period.

 It offers the scope of diversification as

these class of assets follow a trend  It requires longer
opposite to soft assets and can thus management and
reduce our exposure to stocks and bonds maintenance as compared to
when the market of such asset class is soft assets.
falling.
 This purchase involves
 It provides investors an avenue to hedge greater legal and financial
inflation. liability both when
compared to the purchase of
 Investing in real estate provides a source of the soft assets.
utilizing tax benefits, which further helps t
 Debt financing is readily available when .
we want to purchase a hard asset as
compared to soft assets

Mutual  Advanced Portfolio Management  High Expense Ratios and

Funds when you buy a mutual fund, you pay a Sales Charges
management fee as part of your expense If you're not paying
ratio, which is used to hire a professional attention to mutual fund
portfolio manager who buys and sells expense ratios and sales
stocks, bonds, etc.1 This is a relatively charges, they can get out of
small price to pay for getting professional hand. Be very cautious
help in the management of an investment when investing in funds
portfolio. with expense ratios higher
than 1.20%, as they are
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 Dividend Reinvestment
as dividends and other interest income
sources are declared for the fund, it can be
used to purchase additional shares in the
mutual fund, therefore helping your
investment grow.
 Risk Reduction (Safety)
Reduced portfolio risk is achieved through
the use of diversification, as most mutual
funds will invest in anywhere from 50 to
200 different securities—depending on the
focus. Numerous stock index mutual funds
own 1,000 or more individual stock
positions.
 Convenience and Fair Pricing, mutual
funds are easy to buy and easy to
understand. They typically have low
minimum investments (some around
$2,500) and they are traded only once per
day at the closing net asset value
(NAV).1This eliminates price fluctuation
throughout the day and
various arbitrage opportunities that day
traders practice.
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considered to be on the
higher cost end. Be wary
of 12b-1 advertising fees
and sales charges in general.
There are several good fund
companies out there that
have no sales charges. Fees
reduce overall investment
returns.
 Management Abuses
churning, turnover, and
window dressing may
happen if your manager is
abusing his or her authority.
This includes unnecessary
trading, excessive
replacement, and selling the
losers prior to quarter-end to
fix the books.
 Tax Inefficiency
like it or not, investors do
not have a choice when it
comes to capital
gains payouts in mutual
funds. Due to the turnover,
redemptions, gains, and
losses in
security holdings throughout
the year, investors typically
receive distributions from
the fund that are an
uncontrollable tax event.
 Poor Trade Execution
if you place your mutual
fund trade anytime before
the cut-off time for same-
day NAV, you'll receive the
same closing price NAV for
your buy or sell on the
mutual fund.2 For investors
looking for faster execution
times, maybe because of
short investment horizons,
day trading, or timing the
market, mutual funds
provide a weak execution
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strategy.

Stocks  Takes advantage of a growing  Risk: You could lose

economy: As the economy your entire
grows, so do corporate earnings. investment. If a
That's because economic growth company does
creates jobs, which creates poorly, investors will
income, which creates sales. sell, sending the
The fatter the paycheck, the stock price
greater the boost to consumer plummeting. When
demand, which drives more you sell, you will lose
revenues into companies' cash your initial
registers. It helps to understand investment. If you
the phases of the business cycle can't afford to lose
—expansion, peak, contraction, your initial
and trough. investment, then you
should buy bonds.3
You get an income
tax break if you lose
 Best way to stay ahead money on your stock
of inflation: Historically, stocks  loss. You also have
have averaged an annualized to pay capital gains
return of 10%.1 That's better than taxes if you make
the average money.4
annualized inflation rate. It does
mean you must have a longer
time horizon. That way, you can
buy and hold even if the value  Stockholders paid
temporarily drops. last: Preferred
stockholders and
bondholders/creditors
get paid first if a
 Easy to buy: The stock company goes
market makes it easy to buy broke.5 But this
shares of companies. You can happens only if a
purchase them through a broker, company goes
a financial planner, or online. bankrupt. A well-
Once you've set up an account, diversified portfolio
you can buy stocks in minutes. should keep you safe
Some online brokers such as if any one company
Robinhood let you buy and sell goes under.
stocks commission-free.
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 Make money in two ways: Most
investors intend to buy low and
then sell high. They invest in
fast-growing companies that
appreciate in value. That's
attractive to both day traders and
buy-and-hold investors. The first
group hopes to take advantage
of short-term trends, while the
latter expect to see the
company's earnings and stock
price grow over time. They both
believe their stock-picking skills
allow them to outperform the
market. Other investors prefer a
regular stream of cash. They
purchase stocks of companies
that pay dividends. Those
companies grow at a moderate
rate.2
 Easy to sell: The stock market
allows you to sell your stock at
any time. Economists use the
term "liquid" to mean you can
turn your shares into cash
quickly and with low transaction
costs. That's important if you
suddenly need your money in a
hurry. Since prices are volatile,
you run the risk of being forced
to take a loss
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 Time: If buying
stocks on your own,
you must research
each company to
determine how
profitable you think it
will be before you buy
its stock. You must
learn how to read
financial statements
and annual reports
and follow your
company's
developments in the
news. You also have
to monitor the stock
market itself, as even
the best company's
price will fall in
a market correction,
a market
crash, or bear market
 Emotional roller
coaster: Stock prices
rise and fall second-
by-second.
Individuals tend to
buy high, out of
greed, and sell low,
out of fear. The best
thing to do is not
constantly look at the
price fluctuations of
stocks, just be sure to
check in on a regular
basis.
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 Professional
competition: Instituti
onal investors and
professional traders
have more time and
knowledge to invest.
They also have
sophisticated trading
tools, financial
models, and
computer systems at
their disposal. Find
out how to gain an
advantage as
an individual investor.

Bonds  Investment returns are fixed. You  Investment returns are

receive a fixed rate of interest and fixed. While this offers
your principal returned when the higher safety for
bond matures. You know exactly how investors, it is also a
much your returns will be. disadvantage as you
 Less risky compared to stocks. forgo the higher
Besides receiving specified potential gains if you
investment returns, bondholders are invested in equity.
paid first over shareholders in the  Larger sum of
event of liquidation. investment needed.
 Less volatile. A bond’s value can While some bonds can
fluctuate according to current be purchased for
interest and inflation rates but are relatively low sums
generally more stable compared to ($1,000), some bonds
stocks. may require larger
 Bonds have clear ratings. Unlike amounts which may put
stocks, bonds are universally rated by them out of reach for
credit rating agencies like Standard & some investors.
Poor’s and Moody’s. This gives  Less liquid compared
investors more assurance when to stocks. Some bonds
picking a bond but you probably still may be highly liquid like
want to conduct your own research those issued from the
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and due diligence before investing. US Treasury and major
 corporations, but bonds
issued by a smaller, less
financially stable
company may be less
liquid as there are fewer
people willing to buy
them. Bonds with a very
high face values will also
be less liquid as the pool
of potential buyers is
smaller.
 Direct exposure to
interest rate risk.
Interest rates affect the
value of bonds more
directly compared to
stocks. If you plan on
just receiving interest
payments and holding
the bond to maturity,
this might not concern
you. But otherwise,
bondholders are more
exposed to interest rate
risk.
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ACTIVITY 3. The Importance of Investing

Direction: In one paragraph explain why investing is very important for people form all
works of life.

Investment is the act or process of investing for profit or material results, and investment is to
spend money for profit or material results, invest it in financial plans, stocks or property, or use it
to develop a commercial company. Investment is your way of taking care of financial security.
Allows you to increase your wealth, but can also generate additional sources of income if needed
before retirement. In this day and age, it is important to invest for yourself, your family, your
property, etc. This is because investing is a way to earn money and save money for a specific
purpose. Investing can help people spend money to achieve greater goals and opportunities for
growth. In need and emergency situations, you will be grateful that you have allocated your
funds in the safest and best way as an investment. When things get tough and we all need to rest
and enjoy life, investment may be the last resort. That is why the investment is important, you
will have the security and you will assure your future, you will not worry about future expenses
because you have money to spend. Spend your money on things that will definitely benefit you.

ACTIVITY 4.

I have been thinking about the stock market since last year, to be honest I have
invested money in some companies. As of now, I am looking forward to the funds
I invested in January last year. I choose the stock market because I want to save
and earn money for myself and my future. Nowadays, I know it is too difficult to
earn money and save money. I made this decision because my aunt influenced me
and I also want to have my own money to cover my own expenses. The stock
market is where stocks are bought and sold. I am very happy that I started
investing at this age and I hope that one day I can have a lot of investment for
myself and my family. The stock market is one of the greatest opportunities to
create a better future and a better life. I believe that one day this investment will
pay off. My future will be guaranteed, and I will be able to enjoy the rest of my life
regardless of cost.
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ABM-HERMES

PETA NO 1.

Education, as we all know, decreases the difficulties you will face in the future. The more
knowledge you obtain, the more opportunities will open up for you to gain higher career and
personal growth chances. To put it simply, yes, education is unequivocally an investment. As a
matter of fact, it is the most substantial investment that every one of us shall maintain, and here
is why. A great majority of people commenced their education at an early age. I know for a fact
that we all are taught about the significance of education back then, some of us took it seriously,
while some of us just completely disregarded it. I am one of the people who took it seriously.
Consequently, I make sure of my performance in class and give my 100 percent to everything I
do.

First of all, with the application of information, education allows a person to make better and
more informed decisions. This boosts a person's chances of success in life. Education also
contributes to a person's independence. When a person is sufficiently educated, they will no
longer be reliant on others for their livelihood. They will be able to support themselves and have
a happy life since they will be self-sufficient. Further, education is capable of delivering a better
quality of life. It assists people in becoming better citizens, securing a higher-paying career, and
demonstrating the distinction between good and wrong. Education teaches us the value of hard
work while also assisting us in our growth and development. Personally, it would be an
oversimplification to suggest that education is the key to your prosperity. It acts as a key that will
open a variety of doors leading to success. As a result, you will be able to create a better life for
yourself. With all these things considered, I can confidently say that education is the most
powerful investment indeed.