TRINIDAD AND. TOBAGO SECURITIES AND-EXCHANGE COMMISSION TYPES OF INVESTMENT INSTRUMENTS \@ (= ‘ eo www.ttsec. org. ttTYPES OF INVESTMENT INSTRUMENTS =—_—_— The financial world is full of jargon which those persons who routinely operate outside of it may need to have clarified. You will find below explanations for some of the instruments traded in the securities market. SS Se es} = SECURITIES - an investment instrument that has financial value and can be traded. This instrument entitles the owner to specified types of financial benefits. The main classes of securities registered with the TTSEC include: - equity - stocks - debt instruments - mutual funds = EQUITY - an investment instrument through which a corporation raises capital/money by issuing shares which entitle holders to an ownership interest in a corporation. It also entitles the holder to a proportionate share in the corporation's assets and profits = STOCKS - area share of the ownership of a company. Initially, they are sold by the original owners of a company to gain additional funds to help the company grow. The owners basically sell control of the company to the stockholders. After the initial sale, the shares can be sold and resold on the stock market. = BONDS - a debt investment in which an investor loans money to an entity (corporate or governmental). In this case the individual is considered the lender and the government or company is the borrower. The funds are borrowed for a defined period of time at an agreed interest rate. Bonds are used by companies, and governments to finance a variety of projects and activities. A bondholder is entitled to regular interest payments as due, as well as the return of principal when the bond matures = MUTUAL FUNDS - an investment vehicle which pools money from investors and purchases various types of securities such as shares, bonds or money market securities based on stated investment objectives. Each investor owns shares, which represent a portion of the holdings of the fund. Also called a collective investment scheme (CIS) this fund provides almost absolute control of the investment to the company pooling and investing the money. ® You can make money from a mutual fund in three ways: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. e [If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.eee FINANCIAL JARGON MARKET PARTICIPANTS The financial world is full of jargon which those persons who routinely operate outside of it may need to have clarified. You will find below definitions for some of the market participants with whom investors will have to liaise. = BROKER/DEALER- A person or financial institution registered with the Trinidad and Tobago Securities and Exchange Commission, to conduct transactions on behalf of a customer. Brokers act as an intermediary between buyers and sellers of securities and derive their profit from commissions from the execution of customer orders. = INSTITUTIONAL INVESTORS - Any organization which pools large sums of money and invests those sums in securities, real property and other investment assets. Types of institutional investors include banks, investment companies, mutual funds, insurance companies and pension funds. = /NVESTMENT ADVISER - A person who provides investment advice to clients and executes investment decisions. @ REGISTRANT - A person registered with the Commission under the Securities Industry Act, 1995, m SELF REGULATORY ORGANIZATION - A non-governmental agency such as a clearing agency or a stock exchange, which has some degree of regulatory oversight over its members by the adoption and enforcement of fair, ethical and efficient practices within the securities industry = THE STOCK EXCHANGE - is the nation's centralized market place for buying and selling stocks. In addition to increasing the investment options available to individuals, it also provides a mechanism through which companies can raise capital for expansion purposes by selling and issuing securities (stocks and bonds). ™ TRADER - An individual employed by 4 broker who buys and sells securities on the stock exchange. All of these market participants must go through a comprehensive registration process with the TTSEC in order to operate in the market and their actions are governed by the Commission. In the event that any of these participants breach the Act, the Commission has the authority under the Securities Industry Act (1995) to initiate contravention proceedings against them.WHAT KIND OF INVESTOR ARE YOU? Investing is about choices. The choices you make determine who you are as an investor. This is called your investor profile. To discover your profile, ask yourself these four questions: Higher risk means you may lose some or all of your money. Ask yourself; © Do | want to take the chance to make more money if it also means | may lose money? (risk taker) © Would | rather make less and keep my money safe? (risk averse) ( I 5 ; @ With some investments, your return takes the form of income, as interest or dividends. © With others, it takes the form of capital gains (or losses, if you sell an investment for less than you paid). © In most cases, to get a higher return, you have to take more risk. Your time horizon is the number of years that you plan to invest. For example, saving to buy a car is a shorter-term goal. Saving for retirement is a long-term goal. © |nvestments that don't guarantee your return are often better for a longer time horizon. © An investment may go up and down in value. If you need your money and have to Sell early, you may take a loss. If you can stay invested longer, you may get a better return over time. © This is called the liquidity factor. ® Cash is the most liquid. You have it in your hand, purse, or pocket. Money in a bank account is also very liquid. You can get it right away from a teller or a bank machine (ATM), or with a debit card. © |n most cases, when you give up quick and easy access to your money, you should obtain a higher return. However many investment funds that promise a fixed rate of return lock your money into a specified time frame. REMEMBER: Know what's important to you. When you understand yourself better as an investor, it will be easier to make choices that are right for you.i | THINGS TO CONSIDER BEFORE INVESTING Investing in securities can be both challenging and rewarding. There is an undeniable element of risk involved when investing in securities. Different securities carry differing risks and generally the higher the return, the higher the risk. ‘Two elements of risk are the return risk whereby the return from the investment is dependent on several factors. There is also the liquidity risk wherein it may be difficult to turn the security into cash whenever you wish to do so. Itis not always possible to meet financial goals with savings. If needs are substantial you will need to look to investing your savings in avenues that would provide high feturns. Bearing in mind that high returns usually equate to high risk, potential investors need to determine their investor risk profile which is the ability to withstand certain levels of risk. Investment opportunities are classed differently based on their level of risk. As an investor it is wise to allocate your savings amongst different asset classes depending ‘on your particular circumstances. This is known as your asset allocation decision which is the most important decision in the investment process. In order to determine your risk profile you should ask yourself these questions: WHAT KIND OF INVESTOR AM I? © Ama high risk taker? When the values of my investment take a dip do | feel comfortable to ride it out? (What goes down must come up) © Am | averse to risk? Would | lose sleep if the value of my assets took a sharp drop? (What goes down can go down further) Important to note also is the fact that there are four asset classes based on risk profiles: Each investment option has its advantages and disadvantages which you Should have explained to you, before you make the decision to invest.INVESTMENT OPTIONS Investment options can be evaluated using the following criteria: © LIQUIDITY - How easy it is to turn the investment into cash * SAFETY - How stable the investment is ¢ RETURNS © TAX SAVINGS * ACTIVE INVOLVEMENT REQUIRED BY INVESTOR © MINIMUM AMOUNT THAT CAN BE INVESTED © TIME FRAME HOW DO | BUILD AN INVESTME You establish your investment strategy by deciding on the mix of investment products (assets) that you will seek to purchase. The saying “Don't put your eggs in one basket” is very relevant to investing success. In building your investment portfolio you can spread your money across different classes of investments, including: 1. GASH AND CASH EQUIVALENTS * High liquidity * Easy to get your money when you need it. * Provides lower return, but with almost no risk. Examples: Savings accounts, money market funds, and treasury bills 2. FIXED INCOME INVESTMENTS * Offer a fixed rate of return that doesn’t change. * Provides a steady flow of income. * Can lower your investment risk. Examples: Bonds, bond mutual funds. 3. EQUITY INVESTMENTS * Buy a share of ownership in a company. * Riskier than fixed income investments. * Future value is uncertain, and will be affected by: - How well the company is doing now and its future growth - News events specific to the company - Economic trends * Offer the potential to make far more than either a fixed income investment or cash equivalent. Examples: You can buy shares of an individual company's stock, or buy units of a mutual fund that invests in the stocks of many companies. TAC RSer en) FaeChe ck out our website at Pp > FOR MORE HITrinidad and Tobago Securities and Exchange Commission 57-59 Dundonald Street, Port of Spain, Trinidad, W.I. Phone: (868)-624-2991; 624-3017; 624-6708; 625-8508 — Fax: (868)-624-2995 E-mail: ttsec@ttsec.org. tt Website: www.ttsec.org.tt