Professional Documents
Culture Documents
TCH302 - Chủ đề 7 - Tài chính cá nhân
TCH302 - Chủ đề 7 - Tài chính cá nhân
)
TCH302
o A person’s age
o Income
Risk Profile o Wealth
o Years to retirement
o Past financial experiences
General Investor Attributes – By Classification
Considering diversification
• Returns on various assets are impacted by the broader economic environment
in different ways
• Diversification is owning/investing in more than one particular asset, and more
than one asset class.
• The goal of diversification is to minimise risk
Illustrating how diversification can reduce risk in a portfolio of shares
• For a portfolio of shares, we must consider the risk and returns of the whole
portfolio rather than just the return of the individual shares in the portfolio
* Gibson, R. C. (2004). The rewards of multiple-asset-class investing. Journal of Financial Planning, 17(7), 58.
Investor behaviour
• The traditional view is that markets are efficient and that investors are
rational.
• Some irrational behaviour observed:
• Loss aversion — prospect theory: investors dislike losses a lot more than
they like equal gains.
• Herding — people tend to follow crowd behaviour.
• Overconfidence — many investors mistakenly believe they can beat the
market resulting in overtrading and more losses.
• Biased judgements — ‘house prices never go down’.*
* Beaudry, P., & Willems, T. (2022). On the macroeconomic consequences of over-optimism. American Economic Journal: Macroeconomics, 14(1), 38-59.
Information Sources for Investment Choices
• Economic fundamentals
• Industry characteristics and reports
• Company background, prospects, annual reports
• Current market prices
• Government reports
• Analyst reports
• Using the internet as a search engine
Risk and risk management
Risk can be classified in a number of ways. One classification is speculative vs. pure risk
Speculative risk arises where there is a chance of a loss or a gain (eg. gambling or starting
up a business)
Pure risk arises where there is only a possibility of loss or no loss (ie. no chance of gain)
Can be personal, related to property, or as a result of liability
The risk management process is a systematic approach to the identification and
management of pure risks faced by individuals
Key stages in the process are:
Identification and evaluation of potential risks
Possible losses and their costs
Management of identified risks
Avoidance and minimisation
Program review
To ensure ongoing protection
Insurance is the principal means of providing for serious losses
Insurance
• Insurance is based on the concept of pooling
• Pooling is where individuals contribute resources to a fund that is used to pay for
the adverse consequences suffered by some members of the pool
• The contribution to the pool is referred to as a premium
• There are three main categories of insurance
Life
General
• E.g. car, house, travel, business, indemnity, mortgage, workers’ compensation
Health
• Hospital cover or general (ancillary or ‘extras’)
Risk management
•Key stages in the process are:
Identification and evaluation of potential risks Need to consider the threats and vulnerability to these
Possible losses and their costs threats
Threats could be related to health e.g. premature death,
Management of identified risks illness, injury
Avoidance and minimisation It could be related to property e.g. loss of home, car, contents
It could work related e.g. liability, business partner’s health
Program review
To ensure ongoing protection
What is the likely financial consequences from the identified
risks??
Loss of income
Costs that will be incurred
Replacement cost
When the potential loss is large, insurance may be the only
option
When the potential loss is small there may be other
treatments available
Identification and evaluation of potential risks- Life insurance
Management of identified risks Risk avoidance: Avoiding an act that would create a risk.
Avoidance and minimisation
Loss prevention: Any activity that reduces the probability
that a loss will occur
Program review
To ensure ongoing protection Loss control: Any activity that lessens the severity of loss
once it occurs.
Risk assumption: The choice to accept and bear the risk of
loss. => an effective way to handle many types of
potentially small exposures to loss when insurance
would be too expensive.
Transfer – passing financial responsibility to another party
by using insurance
Life insurance