INTRODUCTION Quarter 2:

TO INVESTMENT Week 1
INVESTMENT
An investment is an asset or item that is
purchased with the hope that it will generate
income or will appreciate in the future.

It is the purchase of goods that are not

consumed today but are used in the future to
create wealth.
INVESTMENT
An investment can also be a monetary asset
purchased with the idea that the asset will provide income
in the future or will be sold at a higher price for a profit.

Any mechanism used for the purpose of generating

future income.

The stocks or real estate property, and the constructed

building or other facility used to produce goods.
ADVANTAGES OF
INVESTING
Investing is the process of letting the money
work instead of working hard for the money.
It is advisable for an individual to work in one
job for all their life and then rely on pension after
retirement.
People move from job to job, or from career to
career, and due to this, retirement fails ending up
getting nothing in the end.
ADVANTAGES OF
INVESTING
It will only be through investing earned money
from employment that makes available needed
funds after retirement.
Determining a good return on an investment can
maximize earning potential.
DISADVANTAGES OF
INVESTING
The major disadvantage of investing is the
possibility of losing money on whatever
investment opportunities.
Even in investing in a rare collectible, the value
of it can rise and fall depending on its popularity
and its availability in the market.
DISADVANTAGES OF
INVESTING
Stock prices fluctuates based on how the
competition is doing and the public confidence in
the market.
Even the prices of real estate which is
traditionally the most secure investment are not a
guaranteed return unless there are takers or
buyers.
DIFFERENT TYPES OF
INVESTMENTS
Bank - investing money in a bank is an
investment option either in a savings account,
where it will accrue a small amount of interest, or
in a certificate of time deposits, with higher
interest rates but contains some serious
restrictions on its withdrawals.
DIFFERENT TYPES OF
INVESTMENTS
Bond - A debt instruments, it is a loan that you
are giving to the government or an institution in
exchange for a preset interest rate paid regularly
for a specified term.
It pays interest (a coupon payment) while its
active and expires on a specific date at which
point the total face value of the bond is paid to
the investor
DIFFERENT TYPES OF
INVESTMENTS
Shares of Stock - a type that gives one partial
ownership of a publicly traded company.
Investment in shares of stock is like buying a small
part if a company. If that company makes money, it
will be distributed to each share through dividends.
The share market prices are generally expected to go
up over time and give a “capital gain” on its
investment aside from the dividends received.
However, share market prices can fall in value
depending on the performance of the company.
DIFFERENT TYPES OF
INVESTMENTS
Mutual Fund – an investment vehicle that
allows one to invest money in a professionally-
managed portfolio of assets.
A managed fund is a financial product that buys a
number of shares and other investments such as
property, term deposits, and cash.
DIFFERENT TYPES OF
INVESTMENTS
Mutual Fund
The buying decisions are made by fund managers
who are expert in this field.
Each unit in a managed fund is being spread
across a range of shares or other investment
instruments.
This means that the money invested is
“diversified” so eggs are not all in one basket.
DIFFERENT TYPES OF
INVESTMENTS
Money Market Account – type of savings
account that offers a competitive rate of interest
in exchange for larger-than-normal-deposits

Exchange Traded Fund – sometimes referred to

as baskets or portfolios of securities
DIFFERENT TYPES OF
INVESTMENTS
Real Estate Investments – Real estate is the
only investment that is the safest among other
investments.
Prices will definitely appreciate or increase in
value over time.
However, profits aside from the fruits of
cultivating it will only be realized if the
investment in real estate will be sold.
DIFFERENT TYPES OF
INVESTMENTS
Real Estate Investments
But while waiting for the right buyer, it can either
be subjected to leasing or for some commercial
undertaking like temporary parking spaces and
the like.
Tangible property like land can be converted into
shopping malls, apartment buildings, or almost
anything else that would make it productive.
DIFFERENT TYPES OF
INVESTMENTS
Other Alternatives – Other alternative
investments can include things such as private
equity, hedge funds, fine wine, exotic cars, and
stamps.
There are different reasons for buying each ones,
but, as will all other investments, their value can
go up or down.
INVESTMENT
STRATEGIES
Allocation of investments, which is also known
as asset allocation, are types of investments/asset
categories one own and the percentage of each
one has in investment portfolio
INVESTMENT
STRATEGIES
Diversification is a risk management technique
that mixes a wide variety of investments to
potentially minimize one’s investment risk
INVESTMENT
STRATEGIES
Dollar/Peso Cost Averaging is an investment
strategy used whereby an investor purchases
fixed investment amounts at predetermined times
regardless of the investment price
INVESTMENT
TERMINOLOGY
Capital Asset – long-term asset that is not
purchased or sold in the normal course of
business
Capital Gain/Loss – profit or loss from the sale
of an asset
Capital Appreciation/Depreciation – amount by
which the value of an asset increases/decreases
compared to the amount one paid for it
INVESTMENT
TERMINOLOGY
Dividends – distribution of a portion of a
company’s earnings, decided by the board of
directors to a class of its shareholders
Index – portfolio of securities representing a
particular market or industry or a portion of it
Margin Account – account that allows one to
borrow money from brokerage account to
purchase securities
INVESTMENT
TERMINOLOGY
Prospectus – document filed with the SEC that
describes an offering of securities for sale to the
public
Yield – the income returns on an investment
TYPES OF
INVESTMENT RISKS
Market Risk - market risk or systematic risk is
the possibility of a specific business incurring
losses due to factors affecting the market or the
industry that the business belongs to.
Some known causes of market risk include
economic recessions, shifts in interest rates and
political unrest.
TYPES OF
INVESTMENT RISKS
Equity Risk – applies to an investment in shares,
risk of loss because of a drop in the market price
of shares

Interest Rate Risk – applies to debt investments

like bonds; risk of losing money because of a
change in the interest rate
TYPES OF
INVESTMENT RISKS
Currency Risk – applies when one owns a
foreign investment; risk of losing money because
of a movement in the exchange rate

Liquidity Risk – risk of being unable to sell

investment at a fair price and get money at a time
you want
TYPES OF
INVESTMENT RISKS
Concentration Risk – risk of loss because money
is concentrated in 1 investment or type of
investments

Credit Risk – risk that the government entity or

company that issued the bond will run into
financial difficulties and won’t be able to pay
interest or repay the principal at maturity
TYPES OF
INVESTMENT RISKS
Reinvestment Risk – risk of loss from reinvesting
principal or income at a lower interest rate

Inflation Risk – risk of loss in purchasing power

because the value of investments does not keep
up with inflation. Inflation erodes the purchasing
power of money overtime – the same amount of
money buys fewer goods and services
TYPES OF
INVESTMENT RISKS
Horizon Risk – risk that investment horizon may
be shortened because of an unforeseen event like
loss of job

Longevity Risk – risk of outliving savings

particularly for retired people
TYPES OF
INVESTMENT RISKS
Foreign Investment Risk – risk of loss when
investing in foreign countries

Settlement Risk – risk that the bank may not be

able to give back their deposit.
TYPES OF
INVESTMENT RISKS
Philippine banks are normally insured by the
Philippine Deposit Insurance Corporation
(PDIC). Depositors may recover up to
PHP500,000 per depositor from PDIC in case of
bank default/bankruptcy.
OTHER INVESTMENT
TERMS
Management Fee – the amount clients pay to the
professionals who manage their mutual funds,
normally a certain percentage of portfolio value.
Dividends – distribution of the company’s
income to its shareholders.
Voting Rights – right to be heard on certain
policies that the company wants to implement.
OTHER INVESTMENT
TERMS
Liquidity – ability to be converted into cash, the
higher the liquidity the better.
Margin Trading – allows clients to trade more
than their capital. It can magnify both earnings
and losses.
Inflation – general increase in prices.
Hedge – investment that reduces the risk of
adverse price movements in an asset.
OTHER INVESTMENT
TERMS
Diversification – process of investing in different
kinds of assets to lessen exposure in market/price
volatility.

Geopolitical Risks – “risks of one country's

foreign policy influencing or upsetting domestic,
political, and social policy in another country or
region”
OTHER INVESTMENT
TERMS
Correlation – how price of an asset moves with
respect to another asset (i.e. positive correlation if
both assets move in the same direction, negative
correlation if both assets move in the opposite
direction)
Escalation Clause – agreement to raise prices in
the future depending on certain circumstances
(i.e. increase in inflation leading to higher rental
rates).
OTHER INVESTMENT
TERMS
Insurance Premium – the amount paid on a
regular basis to the insurance company in return
for the insurance/protection provided.

VUL – Variable Universal Life insurance or a

life insurance that offers both death benefit and
investment features.
Questions??
?
WAYS AND MEANS
TO MINIMIZE
INVESTMENT
RISKS
WAYS AND MEANS TO
MINIMIZE INVESTMENT
RISKS
Risk is defined as a chance of loss. In finance, it
is the chance that the actual return would be
different from the expected return on an
investment.
THERE ARE TWO
TYPES OF RISKS:

Systematic Unsystemati
Risks c Risks
THERE ARE TWO
TYPES OF RISKS:
Systematic Risk – has effects that are wider in
scope. It is almost impossible for an investor to
avoid this type of risk.
Examples are natural disaster- a massive
earthquake, a major political event- a coup
d’état or a Covid-19 pandemic.
THERE ARE TWO
TYPES OF RISKS:
Unsystematic Risk – also referred to as specific
risk, which affects only a small number of assets.
Examples would be a firm whose employees
went on strike or a major stockholder getting
involved in a crime or scandal.
THERE ARE TWO
TYPES OF RISKS:
Investors resort to diversification which is a risk
management technique wherein an investor
includes a wide variety of assets or investment
products in his portfolio of investments to
minimize or protect themselves from
unsystematic risk.
THERE ARE TWO
TYPES OF RISKS:
MEASURING
SYSTEMATIC AND
UNSYSTEMATIC RISKS
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

1. Determination of tolerance to different kinds of

risk
Understanding the type of risk, or the combination of
types of risk, is essential in reducing those risks. Two
factors that can help determine the risk tolerance are:
a. Net worth – is assets minus liabilities.
b. Risk capital – is money that, if lost on an
investment, won’t impact the financial position and
lifestyle.
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

1. Determination of tolerance to different kinds of

risk

If there is high net worth and substantial risk capital,

the risk tolerance is higher. But if the net worth and
risk capital is modest or not much, it’s probable to be
better off with conservative, low-risk investments.
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

2. Conducting due diligence

This means making research about the investment
instruments, checking out the investment’s
history, earnings’ growth, management team and
debt load. This information can be compared with
other similar investment products and to other
assets in investment portfolio.
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

3. Diversification of investment portfolio

Diversification is a risk management strategy of
combining a variety of assets to reduce overall risk in
an investment portfolio. One of its purposes is portfolio
risk management.
This lowers investments’ volatility as changes in market
prices of different investments can happen at different
time intervals. This result in a more balance risk and
return or risk is spread over a variety of products.
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

4. Monitoring of investments
Regular reallocation of resources is necessary for
control purposes. Proper allocation of
investments depends on such factors as age,
investment period and investment temperament.
It is necessary to evaluate holdings at least once a
year to assess whether there is a need to buy or
sell assets to bring back the portfolio to proper
asset allocation.
WAYS AND MEANS TO MINIMIZE
INVESTMENT RISKS

5. Taking advantage of government guaranteed

investment products

It is very safe to invest in an instrument which is

guaranteed by the government like Treasury bonds.
These investments are fully backed by the Philippine
government aside from an insurance from the Philippine
Deposit Insurance Corporation (PDIC). In addition,
holding investment until its maturity is better
considering market risks and penalties except for a
secured recovery of principal and interest.
Questions???