Module 4: Basics of Investing

Module 4: Basics of Investing

• This module covers the fundamentals of investing, including the concept of investing, factors to consider before investing, types of investment instruments available in the Philippines, and basic principles of inflation, risk-return trade-off, and investment horizons.

Session Objectives

• Understand the concept of investing and factors to consider before investing.
• Learn the types of investment instruments available in the Philippines.
• Understand basic principles of inflation, risk-return trade-off, and investment horizon.

What is Investing?

• Putting money into an undertaking with the hope of earning income in the future.

Saving vs. Investing

• Saving: The purpose is to maintain liquidity and meet specific goals.
• Investing: The purpose is to earn returns and build assets.

Why Invest? (Inflation)

• Inflation erodes the purchasing power of money over time. Investing helps maintain your money's value.

Factors to Consider When Choosing an Investment Instrument

• Liquidity (how easily can you access the money?)
• Term (length of investment)
• Security (safety of investment)
• Risk (potential for loss)
• Returns (projected profit)

Tips in Investing

• Do your homework
• Invest wisely and long-term
• Understand risk and know your risk appetite
• Diversify your investments
• Develop a "sleep-well" investment portfolio

Investment Horizon

• This is a table of examples displaying investment scenarios of various participants, with profiles defined based on age, investment goals, and anticipated returns.

Typical Investment Instruments

• Stocks
• T-Bills
• Treasury Bonds
• Corporate Bonds
• Mutual Funds
• Unit Investment Trust Funds

Bank Savings Products

• Savings Deposits: Low risk, below 1%, highly liquid.
• Checking Deposits: Low risk, generally 0%, highly liquid.
• Time Deposits: Low risk, generally 2-3% below 91-day T-bill, relatively liquid.
• Long Term Negotiable Certificates of Deposits (LTNCD): Low risk, 6.25-8.25%, relatively liquid, minimum 5-year term.

Money & Capital Market Instruments

• This table shows various money & capital market instruments, their associated risk levels, returns, and liquidity characteristics. This includes Unit Investment Trust Funds (UITFs), Mutual Funds, Government Securities (T-Bills, Bonds), Corporate Bonds, and Stocks.
• Unit Investment Trust Funds (UITF): Different fund types with varying risk profiles and returns.
• Mutual Funds: Liquidity: Good for long term. Risk: Varies based on fund type. Returns: Varies by fund type.
• Government Securities: Low risk due to government backing, short or long-term options available.
• Corporate Bonds: Not guaranteed by the Philippine government; returns may vary, good for 5+ years.
• Stocks: Prices fluctuate daily; good potential for long-term returns. Risks are higher than fixed income. Returns of 13.04% to 24.54 as of May 2016.

How to Invest in Stocks

• Choose a stockbroker.
• Open a trading account.
• Discuss buy/sell orders with your stockbroker.
• Get confirmation receipt.
• Deliver/pay before settlement date.
• Receive payment.
• Monitor/track investments.

How do you Earn from Investing in Stocks?

• Increase in stock price.
• Company-declared dividends.

Investments by Type of Income Generated

• Fixed Income: Time Deposits, Bonds, Treasury Bills, Government Securities
• Variable Income: Stocks, Mutual Funds, UITFs, Corporate Bonds

Fixed Income - T-Bonds

• Return on investment (2% per year) is not too high, but no loss is expected.

Variable Income - Stocks

• Investing in stocks is a long-term game.
• Price fluctuations may occur (such as during the global financial crisis of 2008).

Risk-Return Trade-off

• Higher risk, higher return.
• Lower risk, lower return.

Risk Appetite: Risk vs Return

• A table showing the relationship between risk and return with considerations for low and high income levels.
• Risks are higher with those generating variable income vs fixed income investments.

Types of Insurance Products

• Life insurance (pension, accident, death benefits)
• Non-life insurance (fire, property, travel)
• Pre-need (education, memorial plan)
• Variable life insurance (investment-linked)

Insurance vs Investment

• Investments grow money for long-term goals.
• Insurance provides protection, mitigating contingent events.
• Pre-need addresses future financial needs.

Remember...

• Invest only in products you understand.
• Investigate before investing.
• Invest only what you can afford to lose.

Activity: Careless Whisper

• This is a game demonstrating the concept of message distortion and its importance when evaluating information, especially in investing.