INTRODUCTION TO

INVESTMENT
AND
PERSONAL FINANCE
Savings on Php 10,000 under different types of
investment
Investment Holding Period Value of Php % Return
Type 10,000 today
Bank (Time deposit) 10 years Php 14,000 40%

Stocks (Universal Robina 10 years Php 140,500 1,305%

Corp. “URC)
Stocks (DMCI Holdings, 12 years Php 3,204,878 31,949%
Inc. “DMC”)
Mutual funds (Philequity 5 years Php 23,426 134%
PSE Index Fund)
Mutual funds (Sunlife 5 years Php 20,805 108%
Prosperity Philippines
Equity Fund)
How money losses its value in buying material things

Item Purchase Holding Value Today % Return

Price Period
iPhone 4 32gb Php 30,000 5 years Php 9,000 -70% return
(January 2018)
Playstation 4 Php 25,000 (2019) 3 years Php 8,333.33 -67.67% return

Toyota Vios Php 900,000 15 years Php 180,000 -80% return

(2009)
LG 4K Ultra Smart Php 35,000 (2019) 6 years Php 23,400 -33.14% return
TV 55”
 INVESTMENTS DEFINED

• Commitment of money that is expected to generate additional money

• Application of money or other assets in the hope that in the future it would appreciate or generate
more income.
 Why do individuals invest?

• To achieve a higher level of consumption in the future by forgoing consumption today

• To improve our welfare in the future
• Investments help us achieve tradeoff between current consumption and future consumption
 Risk-Return Tradeoff

• The risk-return tradeoff is an investment principle that indicates that the higher the risk, the higher
the potential reward or return.
• Investors consider the risk-return tradeoff on individual investments and across portfolios when
making investment decisions.
Example Situation:
You are planning to spend the holidays out of town and have chosen Puerto
Princesa as your preferred destination. How would you purchase your airlines
tickets?
a. Purchase it online for P12,000 round-trip with a possibility of refund and rebooking.
b. Make a reservation and pay between P5,000 to P15,000 before the dates if
departure.
c. Immediately purchase it online for P7,000 round-trip with no refund –no rebooking
clause.
d. Purchase it online for P10,000 round-trip with a no-refund clause but with a possibility
of rebooking.
 Risk Preference
➢ Risk preference is the tendency to choose a risky or less risky option.
RISK-SEEKING PREFERENCE
• A risk-seeking preference applies to a person willing to take higher risks to achieve above-
average returns.
RISK-AVERSE PREFERENCE
• This kind of personality almost always chooses the safer investment instead of taking a chance
on the probability of failure.
RISK-NEUTRAL PREFERENCE
• An individual with risk-neutral preference does not care about the risks involved in the decision
making. She is only concerned about the end result. A risk-neutral individual will choose the
assets with the highest possible gains or returns without taking into account possible outcomes.
Risk is defined as the uncertainty of return. It encompasses the possibility of both
gain and losses.

RISK-RETURN TRADEOFF

“Individual won’t take an additional risk unless compensated by additional return”

Types of Investment
Stocks Market
The stock market refers to the collection of markets and exchanges where regular activities of buying,
selling, and issuance of shares of publicly-held companies take place.
https://ph.investing.com/equities/philippines
https://www.pse.com.ph/
WHAT IS A STOCK?
• A stock (also known as equity) is a security that represents the ownership of a fraction of
a corporation. This entitles the owner of the stock to a proportion of the corporation’s assets and
profits equal to how much stock they own. Units of stock are called "shares."
Types of Investment
Bonds
• A bond is a fixed income instrument that represents a loan made by an investor to a borrower
(typically corporate or governmental).
• Bonds are used by companies, municipalities, states, and sovereign governments to finance
projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.
Types of Investment
Mutual Fund
• A mutual fund is a company that brings together money from many people and invests it in stocks,
bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known
as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings.
Investors typically earn a return from a mutual fund in three ways:
1. Income is earned from dividends on stocks and interest on bonds held in the fund's portfolio. A fund
pays out nearly all of the income it receives over the year to fund owners in the form of a distribution.
2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass
on these gains to investors in a distribution.
3. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in
price. You can then sell your mutual fund shares for a profit in the market.
Types of Investment
Real State
• Real estate is a class of "real property" that includes land and anything permanently attached to
it, whether natural or man-made.
• There are five main categories of real estate: residential, commercial, industrial, raw land, and
special use.
Types of Investment
Bank Deposits
• Bank deposits are considered either demand (the bank is required to return your funds on
demand) or time deposits (banks ask for a specified time frame for accessing your funds).
Types of Investment
Hard Asset
• A hard asset is a tangible or physical item or resource that an individual or company owns.
• Hard assets can be long-term assets, such as machinery or short-term assets, such as raw
materials or inventory.
Types of Investment
Insurance
• Insurance is a contract, represented by a policy, in which an individual or entity receives financial
protection or reimbursement against losses from an insurance company.
• Insurance policies are used to hedge against the risk of financial losses, both big and small, that
may result from damage to the insured or her property, or from liability for damage or injury
caused to a third party.
 PERSONAL FINANCE

Personal finance is a term that covers managing your money as

well as saving and investing. It encompasses budgeting,
banking, insurance, mortgages, investments, retirement
planning, and tax and estate planning.
Financial Planning and the Individual’s Life Cycle
FOUR INVESTMENT PHASES (BROWN AND REILLY, 2014)
1. Accumulation phase

• Accumulation phase brings to life the

planning done in the planning phase and is
the longest phase in an investor’s life cycle.
• The accumulation phase refers to the time in
the life cycle of an investment when an
individual or an investor builds up the value
of their annuity or investment.
Financial Planning and the Individual’s Life Cycle
INVESTMENT PHASES

2. Consolidation Phase

• Consolidation phase is the midpoint of their

career, in this phase, they earn more, spends
more and pay off all their debts. In this
phase moderately high risk taken by the
Consolidation Phase investor but for capital reservation some
investor prefer lower risk investor. Individual
invest in the capital market and investment
securities.
Financial Planning and the Individual’s Life Cycle
INVESTMENT PHASES

3. Spending phase

• The distribution phase is triggered upon retirement

or in the years leading to the retirement of the
individual.
• This phase starts when an individual retires from the
job. Their overall portfolio is to be less risky than the
consolidation phase; they prefer low risky
Spending Phase investment or risk-free investment. People prefer
fixed income securities like a bond, debenture,
treasury bills etc. In this phase, they need some risky
investor if they have extra money so that future
inflation can be adjusted.
Financial Planning and the Individual’s Life Cycle
INVESTMENT PHASES

4. Gifting phase

• If individuals believe that they have enough

extra funds to meet their current and future
expenses then they go for gifting money to
their friends, family members or establish
Gifting Phase charitable trusts. These can reduce their
income taxes and they also keep some fun
for future uncertainties.
 PERSONAL FINANCE
Basic Principle of Personal Finance
1. The Best Protection is Knowledge
2. Nothing Happens Without Plan
3. The Time Value of Money
4. Taxes Affect Personal Finance Decisions
5. Stuff Happens, or the Importance of Liquidity
6. Waste Not, Want Not – Smart Spending Matters
7. Protect Yourself Against Major Catastrophes
8. Risk and Return Go Hand in Hand
9. Mind Games and Your Money
10. Just Do It!