Republic of the Philippines

CENTRAL PHILIPPINES STATE UNIVERSITY

COLLEGE OF AGRICULTURAL AND FORESTRY
Sipalay Campus
Brgy. Gil Montilla, Sipalay City, Negros Occidental

AB20
INTRODUCTION TO INVESTMENT MANAGEMENT
MIDTERM EXAM
Name: ____________________________________________________________________________
Course & Year: _____________________________________________________________________

Instruction: Read the scenario below and make a reaction paper about it. A4 paper, 2 pages, Font:
Times New Roman, Space: 1.5. (100 points)

Scenario: The Impact of a Market Downturn on an Investor's Portfolio

Imagine a hypothetical investor named Sarah who has been diligently saving and investing for her
retirement. She has a well-diversified portfolio consisting of stocks, bonds, and real estate
investments. Sarah is in her early 50s and plans to retire in 10 years.

However, a significant market downturn occurred, resulting in a sharp decline in the value of her
investments. The stock market experiences a bear market, and the real estate market is also affected
due to economic uncertainties. Sarah's investment portfolio has suffered a substantial loss, and she is
concerned about her retirement plans.

In your reaction paper, you can ask your students to:

1. Analyze the emotional and psychological impact of the market downturn on Sarah as an investor.
How might she be feeling, and what are her immediate concerns?

3. Offer potential strategies and advice for Sarah to mitigate the effects of the market downturn on her
portfolio and retirement plans. What steps should she consider taking?

4. Reflect on the role of risk tolerance and time horizon in investment decision-making, particularly in
times of market volatility.

5. Provide insights into the concept of staying the course or making adjustments to her investment
strategy during a market crisis. What factors should she consider when making this decision?

6. Consider the long-term implications of her choices and how they might impact her retirement goals.

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 Republic of the Philippines
CENTRAL PHILIPPINES STATE UNIVERSITY
COLLEGE OF AGRICULTURAL AND FORESTRY
Sipalay Campus
Brgy. Gil Montilla, Sipalay City, Negros Occidental

“REACTION PAPER ON THE IMPACT OF A MARKET DOWNTURN ON AN INVESTOR'S

PORTFOLIO”

Name: ____________________________________________________________________________
Course & Year: _____________________________________________________________________

1. Analyze the emotional and psychological impact of the market downturn on Sarah as an investor.
How might she be feeling, and what are her immediate concerns?
It will have negative effects on her mental health and become extremely pessimistic. The
stress brought about by the market downturn toward her investments will contribute to the
increase in suicide rates and incidence of self-harm during recessions.
When the stock market goes down and the value of your portfolio decreases significantly,
Sarah's immediate concerns might ask herself or his/her financial advisor (if she has one)
“Should I pull my money out of the stock market?” That’s understandable, but in my opinion
most likely not the best course of action. Instead, she should perhaps be asking, “What should
I not do?”
2. Discuss the importance of diversification in Sarah's investment portfolio. How has diversification
helped or hindered her during this market downturn?
Diversification involves spreading your money across a variety of investments and asset
classes. A diversified portfolio helps to reduce risk and may lead to a higher return.
Investments that move in opposite directions from one another will add the greatest
diversification benefits to your portfolio. In my opinion, during the market downturn not all
of her investments were affected as you can see the bond investment that he had invested was
not affected during the market downturn only the stock and real estate investments. That was
the best thing Sarah did she didn’t invest her all money in one asset despite, invested it in
different aspects of investment. Sarah might understand that in investment you should prepare
for the risks that might come and always don’t panic during a market downturn.
3. Offer potential strategies and advice for Sarah to mitigate the effects of the market downturn on her
portfolio and retirement plans. What steps should she consider taking?
Sarah will then realize that she should have a plan, prioritize saving, know the power of
compounding, understand risk, diversification, and asset allocation, minimize investment
costs, learn classic strategies, be disciplined, and think like an owner or lender, and never
invest in something you do not fully understand.

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 Republic of the Philippines
CENTRAL PHILIPPINES STATE UNIVERSITY
COLLEGE OF AGRICULTURAL AND FORESTRY
Sipalay Campus
Brgy. Gil Montilla, Sipalay City, Negros Occidental

4. Reflect on the role of risk tolerance and time horizon in investment decision-making, particularly in
times of market volatility.
Knowing the risk tolerance level helps investors plan their entire portfolio and will drive how
they invest. For example, if an individual's risk tolerance is low, investments will be made
conservatively and will include more low-risk investments and less high-risk investments.
5. Provide insights into the concept of staying the course or making adjustments to her investment
strategy during a market crisis. What factors should she consider when making this decision?
- Keep investing consistently. As we can see Sarah has a well-diversified portfolio, the
importance of diversifying is all of Sarah’s investment is not affected by the market crisis. So, Sarah
should think that she should focus on investing in her bond investment. During a market crisis, Sarah
shouldn’t get panic otherwise she should think calmly and focus on the things that might make the
disadvantage an advantage. She should keep investing consistently. By investing a fixed amount of
money at regular intervals regardless of market conditions, you're more likely to be able to purchase
equities at more affordable prices, and potentially see the shares rise in value once the market
rebounds.
Factors that she should consider when making decisions:
Choose investments
Diversify
Keep your portfolio rebalanced
Allocate for the long-term
Avoid panic selling
Consider dividend investing
Invest in yourself
Simplify your finances
Why does it matter to you?
6. Consider the long-term implications of her choices and how they might impact her retirement goals.
Keep investing consistently.
Since interest compounds exponentially, a longer investment horizon can generate much greater
profits than a short-term investment. This is why it is important to save for retirement early a small
investment can generate high returns if it has a few decades to grow.