Module 4 Basics of Investing PDF

Module 4 BASICS OF INVESTING 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-...

Module 4 BASICS OF INVESTING 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 DEPARTMENT OF EDUCATION WHAT IS INVESTING? Putting your money in an undertaking with the hope that it will yield an income in the future. DEPARTMENT OF EDUCATION SAVING VERSUS INVESTING Save to… Invest to… BE LIQUID EARN RETURNS MEET SPECIFIC GOALS BUILD ASSETS WHY INVEST? INFLATION DEPARTMENT OF EDUCATION DEPARTMENT OF EDUCATION 1997 2007 2017 DEPARTMENT OF EDUCATION  Factors to consider 1. LIQUIDITY when choosing an investment instrument 2. TERM 3. SECURITY 4. RISK 5. RETURNS DEPARTMENT OF EDUCATION  DO your homework Tips in INVEST wisely and long term investing UNDERSTAND risk and KNOW your risk appetite DIVERSIFY your investments DEVELOP a “sleep-well” investment portfolio DEPARTMENT OF EDUCATION Investment Horizon ANNA BENJIE CHARLIE Principal Protected P5,000.00 P5,000.00 P5,000.00 Investments per month Return on Investment 2% 2% 2% Current Age 20 y/o 30 y/o 40 y/o Retirement Age 60 y/o 60 y/o 60 y/o Time Horizon 40 years 30 years 20 years Investment Earnings P 3,624,119.00 P 2,434,085.00 P 1,457,842.00 Risk Profile Aggressive Moderate Conservative  CORPORATE BONDS UNIT INVESTMENT STOCKS TRUST FUNDS Typical Investment Instruments T-BILLS MUTUAL FUNDS TREASURY BONDS DEPARTMENT OF EDUCATION Bank Savings Products Liquidity, Savings Products Risk Return Timeframe Savings Deposits Low Risk Below 1% Highly Liquid Current or Checking Deposits Low Risk Generally 0% Highly Liquid Generally Time Deposits Low Risk 2-3% below 91-day Relatively Liquid (US$ and PhP) T-bill Long Term Negotiable Relatively Liquid Certificates of Deposits Low Risk 6.25 – 8.25% Minimum of 5 years (LTNCD) DEPARTMENT OF EDUCATION Money & Capital Market Instruments Investment Liquidity, Risk Return Instruments Time frame Liquid Unit Investment - 6.46% to Good for long Trust Fund Money Market Fund – Low Risk 21.88% 1/ term Bond Fund – Low Risk (5 years or more) Balanced Fund – Moderate Risk Equity Fund – High Risk Liquid Mutual Funds - 0.58% to Good for long 10.59% 2/ term 1/ As of March 2015 2/ As of May 2016 Source: uitf.com.ph DEPARTMENT OF EDUCATION Money & Capital Market Instruments Investment Liquidity/ Risk Return Instruments Time frame Liquid, Government Low risk since they are Short term for Securities backed by the T-Bills - T-Bills Government of the 1.541% (T-Bills, T-Bonds) Philippines Long term for T-bonds DEPARTMENT OF EDUCATION  Money & Capital Market Instruments Investment Liquidity/ Risk Return Instruments Time frame Not guaranteed by Liquid Corporate Bonds Government of the Return varies Philippines Good for five years or more Can be sold any day but proceeds - 13.04% to 24.54% Stocks Prices fluctuate daily 2/ of sale after 3-5 days Good for longer term 1/ Source – www.pifa.com.ph 2/ As of May 2016, Source – www.pinoymoneytalk.com DEPARTMENT OF EDUCATION Source: www.pseacademy.com.ph 16 DEPARTMENT OF EDUCATION  1. Increase in stock price or capital appreciation 2. Dividends declared by the company Source: www.pseacademy.com.ph 17 DEPARTMENT OF EDUCATION INVESTMENTS by type of income generated Fixed Income – Time Deposits, Bonds, Treasury Bills, Government Securities Variable Income – Stocks, Mutual Funds, UITF, Corporate Bonds DEPARTMENT OF EDUCATION Fixed Income – T-Bonds T-Bonds, 2% per year 200000 180000 160000 Return on investment 140000 is not too high. 120000 But you will not Pesos 100000 80000 experience any loss 60000 either. 40000 20000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Number of Years DEPARTMENT OF EDUCATION Variable Income – Stocks You may experience gains and losses over time, but if you invest long enough, your money still increases. Global financial crisis (2008) DEPARTMENT OF EDUCATION RISK-RETURN TRADE-OFF The higher the risk, the higher the return. The lower the risk, the lower the return. “ DEPARTMENT OF EDUCATION RISK APPETITE: RISK VS RETURN Low Income High Income Low Risk High Risk DEPARTMENT OF EDUCATION RISK APPETITE: RISK vs RETURN Low Income High Income Fixed Income Beware! Study very Low Risk Investments carefully. Why invest in Variable Income High Risk these? Investments DEPARTMENT OF EDUCATION TYPES OF INSURANCE PRODUCTS Life insurance (pension, accident, death benefits) Non-life or general insurance (fire, property, travel) Pre-need (education, memorial plan) Variable life insurance (investment linked) DEPARTMENT OF EDUCATION INSURANCE VERSUS INVESTMENT Product Investment Insurance Pre-need To ease the burden of To provide for future beneficiaries in case of To grow your money for needs such as education contingent events (death, Purpose long-term goals fund, pension fund, accidents, sickness, natural memorial service disasters) For yourself and family For yourself and family For defined future needs Banks, Insurance Companies, Mutual Benefit Associations, Providers Investment Houses, Cooperative Insurance Societies Brokers Securities and Exchange Regulators Commission, Insurance Commission Bangko Sentral ng Pilipinas DEPARTMENT OF EDUCATION REMEMBER… 1 Invest only in products and businesses that you fully understand. 2 Before you invest, investigate! 3 Invest only amounts that you are prepared to lose DEPARTMENT OF EDUCATION ACTIVITY 1) Everyone participates, line up, all facing the back except the first Careless Whisper person in line 2) First in line observes Game Master acting out a “message” 3) First person taps back of next person who turns around to receive the “message” 4) Passing of the “message” continues until the last person, who will act out the “message” in front for Investing 5) Most accurate demonstration of the “message” wins DEPARTMENT OF EDUCATION  Module 4 BASICS OF INVESTING