The Factors that affect the

Investment Behaviour of Income

Earners from Naga City.
Chapter 1
Introduction
Investment is essentially an asset that is created to
allow money to grow. The wealth created can be
used for a variety of objectives such as meeting
shortages in income, saving up for retirement, or
fulfilling certain specific obligations such as
repayment of loans, payment of tuition fees, or
purchase of other assets. There are a large number
of investment instruments available today. Some of
them are marketable and liquid while others are
non-marketable and illiquid. Some instruments are
highly risky while others are not. The major types of
investment are ownership investments, lending
investments, cash equivalents, alternative and funds.
Nowadays, people are not fully aware and
educated on how an investment works
because of their investment behavior.
Investment behaviors are defined as how the
investors judge, predict, analyze and review
the procedures for decision making, which
includes investment psychology, information
gathering defining and understanding,
research and analysis.(Slovic, 1972; Alfredo
and Vicente, 2010).
Investment behavior is critical to an individual’s future
and that decision may be contingent on many factors.
It has been argued that attitudes among other
variables can predict the investment decision process
(East, 1993). Prior research has suggested that the
improvement of education in financial management
significantly correlates with decision-making on
critical investment issues (Chen and Volpe, 1998). To
get the best out of investment, an understanding of
human nature in financing perspective is required .
This research study aims to discuss the Factors
that affect the Investment Behaviour of
Income Earners from Naga City. Also, this
study will offer recommendations that are
supported by published literature which will
be cited in the latter part of this study.
 Significance of the Study
• Faculty - This study will help the teachers
especially to those who handling subjects
related to finance, to include the topic about
the level of awareness on financial literacy on
their syllabus.
• Students - This study will help them
understand the role of investment and learn
the investment behaviour of different people.
• Income Earners in Naga City - This study will
help them realize the importance of
investment and will help them in in the
process of decision making.
• Future Researchers - This study will serve and
guide them to be their reference in their
researches.
 Statement of the Problem
• What is the profile of Income Earners from Naga
City along, age, gender, civil status, occupation,
and monthly income?
• What are the factors that contribute in change of
investment behaviour of income earners in
decision making?
• What is the relative importance of different
factors in shaping individual?
 Scope and Delimitation
• This study covered all the income earners
from Naga City ages 21-45 years old. The
method that will be use to collect all the
information needed is through survey. This
will be use to evaluate the different factor that
affects the investment behaviour of income
earners. The researchers have planned to
survey 100 respondents from Naga City.
Theoretical Framework
 Siebert (1963)
Internal Funds Theory of Investment
Explained that the desired capital stock and,
hence, investment depends on the level of
profits. Since investment presumably depends
on expected profits, investment is positively
related to realized profits. Alternatively, it has
been argued that managers have a decided
preference for financing investment internally.
 Markowitz (1950)
Modern Portfolio Theory
• Cited that it allows an investor to mathematically trade off
risk tolerance and reward expectations, resulting in the ideal
portfolio. This theory was based on two main concepts:
(1) Every investor’s goal is to maximize return for any level of
risk
(2) Risk can be reduced by diversifying a portfolio through
individual, unrelated securities. MPT works under the
assumption that investors are risk-averse, preferring a
portfolio with less risk for a given level of return.
Under this assumption, investors will only take
on high-risk investments if they can expect a
larger reward. But investors are risk-averse,
meaning they prefer a less risky portfolio to a
riskier one for a given level of return. As a
practical matter, risk aversion implies that
most people should invest in multiple asset
classes.
 Pieters and Zeelenberg (2007)
Regret Theory
• States that many investors consider the possibility that they
will regret their investment decisions. The spectre of regret
may have different effects on different persons. For example, it
may motivate one investor to take more risks because he/ she
would regret not doing so if the price of securities increases a
great deal. Likewise, it may motivate another investor to be
more risk averse because he/she would regret buying some
stocks if the price drops significantly. The study of regret is one
example of behavioral finance.
 Conceptual Framework
• This research focused on the income earners from Naga City.
The information will help to determine the factors affecting
the investment behavior of income earners. In this case,
survey method was used in the conduct of the research for
the supporting details of the survey.
• This research will help the income earners them realize the
importance of investment and will help them in decision
making. With the help of the information gathered, they can
manage and understand the importance of investment.
 Assumption
• The demographic factors affect the investment
behavior of the income earners from Naga City.
• Psychological Factors affect the investment
behavior of the income earners from Naga City.
• Quantitative factors affect the investment
behavior of the income earners from Naga City.
 Hypothesis
• Different factors contribute to the change of
income earner's investment behavior.
• The investment behavior of an income earner
affects their decision making.
• Decision making of income earners from Naga
City differs in terms of priorities.
 Definition of Terms
• Investment - the action or process of investing money
for profit. Investment can be defined as an asset, which
is purchased with the expectation that it will create
income, or value will increase in the future.
• Income earners - an individual who through work,
investments or a combination of both derives income
but in this study the researchers will focus on
 income earners who derive most of their income from
occupational activities.
• Investment Behavior - defined as how the
investors judge, predict, analyze and review
the procedures for. decision making, which
includes investment psychology, information
gathering, defining and understanding,
research. and analysis.
• Investor. a person or organization that puts
money into financial schemes, property, etc.
with the expectation of achieving a profit.
• Demographic Factor.  the socioeconomic
characteristics of a population expressed
statistically. These typically include such factors
as age, gender, level of education, amount of
income, marital status, occupation, religion, birth
rate, death rate, the average size of a family, the
average age at marriage etc. But the researchers
will focus on the Age , Gender, Marital Status,
Income, Profession and Awareness and
knowledge regarding investment
• Psychological Factors.  the factors that talk
about the psychology of an individual that
drive his actions to seek satisfaction.
• Quantitative factors.   The numerical
outcomes from a decision that can be
measured. These factors are commonly
included in various financial analyses, which
are then used to evaluate a situation.