Understanding Investments and Asset Classes

• Investments are assets or items acquired to generate income or appreciation.
• Appreciation refers to an increase in an asset's value over time.
• Financial investment involves purchasing an asset or instrument to sell it at a higher price in the future.
• Equity investment is the buying of stocks from companies to gain ownership.
• Loans can be purchased as a form of investment to generate future income.
• Investment decisions require considering the risk-return trade-off.
• Higher risk investments are generally associated with higher potential returns, while lower risk investments typically offer lower returns.

Types of Investments

• Fixed income and equities
• Alternatives to fixed income and equities
• Other investment assets

Fixed Income and Equities

• Fixed income refers to the interest payments an investor that receives based on the borrower's solvency and current interest rates.
• Fixed income investments offer higher interest rates based on their maturities.
• Equity investment involves buying shares in a company to gain ownership interest, which can be sold later for returns.

Stocks (Equity)

• Advantages: Have potential for unlimited upside.
• Disadvantages: No guaranteed returns and are the riskiest of all assets.

Bank Deposits (Fixed Income)

• Advantages: Provide known income based on outstanding principal and current interest rates.
• Disadvantages: Offer lower interest income compared to bonds and face settlement risk if bank fails.

Bonds (Fixed Income)

• Advantages: Known periodic payments for a specific period.
• Disadvantages: Can cause an investor to gain or lose money if not held until maturity.

Other Fixed Income

• Treasury bills
• Money market instruments
• Asset-backed securities

Alternatives to Fixed Income and Equities

• Alternative investments are financial assets that do not fall into conventional equity, income, or cash categories.
• Alternative investments are not easily converted to cash, or are illiquid.

Mutual Funds

• Advantages: Offer advanced portfolio management, dividend reinvestments, convenience, and fair pricing.
• Disadvantages: High expense ratios, sales charges, management abuses, tax inefficiency, and poor trade executions can occur.

Unit Investment Trust Fund (UITF)

• Advantages: Similar to mutual funds, provide easier access, and have no entry or management fees.
• Disadvantages: No shareholder rights for investor, especially dividends and voting rights.

Other Investment Assets

• These include tangible or intangible items obtained for producing extra income or for speculation in anticipation of a future increase in value.

Currencies (Peso, Dollar, Euro)

• Advantages: It is the largest market globally and serves as a medium of exchange for transactions.
• Disadvantages: Volatile, trades 24/7, and the use of margin trading can allow clients to be more than their limits.

Cryptocurrencies

• Advantages: It provides protection against inflation.
• Disadvantages: Can be used for illegal transactions and can face data losses.
• Blockchain is technology spreading across many computers that manages and records transactions.

Cryptocurrencies / Digital Currencies

• Advantages: Decentralized, cost-effective, and fast way to transfer funds.
• Disadvantages: Decentralized, but still operated by some organizations. Some coins aren't currently supported.

Cryptocurrencies / Digital Currencies

Advantages: Provides protection for inflation

• Disadvantages: Can be used in illegal transactions
• Disadvantage: Mining can cause environmental damage

Commodities

• Basic goods that are commonly traded such as oil, gold, and base metals like nickel.
• Advantages: It acts as a natural hedge and has low correlation to relative equities and bonds plus acts as a hedge.
• Disadvantages: Same as currencies and impractical to directly invest in considering storage, transportation, and insurance costs.

Real Estate

• Advantages: Generally appreciates over time, has low correlations with other asset classes, and is a source of recurring income, and may hedge off inflation.
• Disadvantages: Requires huge capital, maintenance, and can be highly illiquid.

Insurance

• Advantages: Provides the insured individual/entity with cash capital to deal with unforeseen adverse financial events and can provide some types of tax benefits.
• Disadvantages: Insurance premiums can be costly and lack benefits if one is insured until a certain age as well as some companies going bankrupt