ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
THE MODULE

TITLE: INVESTMENT OBJECTIVES AND RISKS

WHAT IS THE MODULE ALL ABOUT?

Module 1 focuses on Investment Objectives and Risks. It deals on how to

assess investor’s interests regarding investment and speculation, the level of risk that
an investor is willing to take for every investment made, and the types of investment
opportunities in the market and/or environment.

LIST OF TOPICS TO BE STUDIED IN THE MODULE

The following topics are included in this learning module:

 Lesson 1. Investment Defined

 Lesson 2. Speculation vs. Investment
 Lesson 3. Why Do We Invest?
 Lesson 4. Factors to be Considered By Investors
 Lesson 5. The Investment Process
 Lesson 6. Ingredients in a Successful Investment Strategy
 Lesson 7. Features of Investment Program
 Lesson 8. Risks of Investment
 Lesson 9. Materials of Investment

INTENDED LEARNING OUTCOMES (ILO)

At the end of this module, the students would be able to:

1) Describe, explain, and integrate fundamental concepts underlying investment
objectives and risks.

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
2) Understand the investment process and ingredients in a successful investment
strategy.
3) Analyze the features of investment program in relationship to decision making.
4) Differentiate the types of investment risks.
5) Identify and effectively define the materials of investment.

LEARNING CONTENT

INVESTMENT OBJECTIVES AND RISKS

INTRODUCTION

The subject of investments embodies the study of many types of assets and
how they may be held or used for the financial benefit of investors. In purchasing such
assets, the investors employ funds at one point in time with the expectation of future
returns. These expected returns should be sufficient to compensate the investor for
the time the funds are committed and for the risks associated with the particular
investment. Hence investment management is the solution.

THE PHILIPPINE ECONOMY TODAY

The economy dipped in the first quarter as disruptions from the Taal Volcano
eruption in January, the Covid-19 pandemic and subsequent lockdown put in place
in March combined to hammer activity. GDP contracted 0.2% in Q1 2020, after
expanding 6.7% in Q4 2019. This marked the first year-on-year economic contraction
since Q4 1998 and also surprised market analysts who had expected growth of 3.1%.
In seasonally-adjusted quarter-on-quarter terms, the economy shrank 5.1% in Q1,
contrasting the revised 1.8% expansion in Q4 (previously reported: +2.2% quarter-
on-quarter).

Domestic demand was hard hit in the quarter. Fixed investment fell 4.3% on
an annual basis in Q1 (Q4: +5.8% yoy), on a sharp drop in investment of durable
goods equipment and construction investment. This was likely due to the volcano
eruption which disrupted manufacturing activity in the Luzon region and the early
effects of the pandemic on supply chains and business sentiment. Meanwhile, private
consumption nearly flat lined in Q1, hitting a two-decade low, as consumers became
more hesitant to spend amid heightened uncertainty and social distancing (Q1: +0.2%
Course Code: Fin 156
Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
yoy; Q4: +5.7% yoy). Public consumption growth also moderated sharply, slowing
from 17.0% in Q4 to 7.0% in Q1. Turning to the external sector, exports of goods and
services declined at the sharpest rate in seven years in Q1 as a result of the
pandemic’s impact on global trade and tourism (Q1: -3.0% yoy; Q4: +0.3% yoy).
Imports of goods and services, meanwhile, plunged by the greatest extent since Q1
1999, in tandem with the pullback in investment and household spending.
Consequently, net exports made no contribution to growth in Q1, as in Q4.

While Q1’s result marked an over two-decade low, prospects for Q2 are even
more dismal. Focus Economics panelists project the economy will contract at a
sharper rate as the full extent of the economic costs of the lockdown truly took hold
in April and will likely continue to hamper activity for the rest of May and in June.
Private consumption, investment, and exports will all suffer further from the
quarantine measures. That said, simultaneous fiscal and monetary stimulus should
help avert a deeper downturn and ensure a quick recovery.

Nevertheless, the Philippines expects to sustain progress in poverty reduction.

Amidst rising global uncertainties, the Philippine economy remains strong and is
projected to grow 5.8% in 2019, before recovering to 6.1% and 6.2% in 2020 and
2021, respectively.

LESSON 1: INVESTMENT DEFINED

An investment is an asset or item acquired with the goal of generating income

or appreciation. In an economic sense, an investment is the purchase of goods that
are not consumed today but are used in the future to create wealth. In finance, an
investment is a monetary asset purchased with the idea that the asset will provide
income in the future or will later be sold at a higher price for a profit.

Important: An investment always concerns the outlay

of some asset today (time, money, effort, etc.) in hopes
of a greater payoff in the future than what was originally
put in.

Understanding Investment

Investing is putting money to work to start or expand a project - or to purchase

an asset or interest - where those funds are then put to work, with the goal to income
and increased value over time. The term "investment" can refer to any mechanism
used for generating future income. In the financial sense, this includes the
purchase of bonds, stocks or real estate property among several others.
Additionally, a constructed building or other facility used to produce goods can be seen
as an investment. The production of goods required to produce other goods may also
be seen as investing.

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
Taking an action in the hopes of raising future revenue can also be considered
an investment. For example, when choosing to pursue additional education, the goal
is often to increase knowledge and improve skills in the hopes of ultimately producing
more income. Because investing is oriented toward future growth or income, there is
risk associated with the investment in the case that it does not pan out or falls short.
For instance, investing in a company that ends up going bankrupt or a project that
fails. This is what separates investing from saving - saving is accumulating money for
future use that is not at risk, while investment is putting money to work for future gain
and entails some risk.

Key Takeaways

 Investment is the act of putting money to work to start or expand a

business or project or the purchase of an asset, with the goal of earning
income or capital appreciation.
 Investment is oriented toward future returns, and thus entails some degree
of risk.
 Common forms of investment include financial markets (e.g. stocks and
bonds), credit (e.g. loans or bonds), assets (e.g. commodities or artwork),
and real estate.

Categories of Investment

1) REAL INVESTMENT
Refers to investments in the form of tangible assets such as land,
houses, precious metals, buildings and equipment. These are income-
generating assets used to produce goods and services. These are not
liquid and are not easily divisible.

2) FINANCIAL INVESTMENT
Refers to investments in the form of paper assets which are collectively
called marketable securities such as bonds, stocks, convertible
securities, mutual funds and short-term money market instruments.
These represent claims against the income generated by real assets.
Investors in paper assets usually plan to hold their investments for

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
shorter period of time. Paper assets are very liquid and are easily
divisible.

3) MONEY MARKET INVESTMENT

Refers to investments in securities with maturities of less than one (1)
year. Treasury bills issued by the Bureau of Treasury with maturities of
less than 360 days. Aside from the BSP, the banking sector is the major
investor in money market with other players such as SSS, GSIS and
HDMF (Pag-ibig).

Treasury bills – are domestic government debt issued regularly to

finance the national government needs for capital. These are used as
monetary tools to control liquidity, and are used for reserve
requirements and collateral.

4) CAPITAL INVESTMENT
Refers to investments in securities with maturities greater than one (1)
year. Example: Government bonds issued by Bureau of Treasury, BSP
and private companies like Globe Telecoms with maturities of 2-30
years.

Lesson 2: INVESTMENT VS. SPECULATION

Investment – involves the expectation of some positive rate of return that can
be reasonably expected after sufficient analysis has been made.
Speculation – involves a higher level of risk and more uncertain expectation of
returns.

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
INVESTMENT SPECULATION
Long-term, saving for Generally a short timeline of
future less than one year
Moderate High

Cautious and Aggressive

conservative
Based on fundamentals
and basic factors
Stock market, bonds,
mutual funds
Based on technical charts,
market psychology and
individual opinion
Options, foreign currencies,
cryptocurrencies

A cryptocurrency (or crypto currency) is a digital asset designed to

work as a medium of exchange
wherein individual coin ownership
records are stored in a digital ledger
or computerized database using
strong cryptography to secure
transaction record entries, to control
the creation of additional digital coin
records, and to verify the transfer of
coin ownership.

Investor is interested in long-term holding of securities, usually for at least one

year while speculator holds only for few days, weeks or months. Investor is willing to
assume moderate risk and generally buys securities issued by established companies
while speculator assumes high risks, often buying volatile issues (with wide
fluctuations) or lower grade securities. Investor uses own money rather than borrowed
funds to buy securities while speculator usually borrows money from brokerage firms
to buy securities.

Investor is interested in current return in the form of interest income or dividends

as well as possibilities of capital appreciation. On the other hand, speculator is
interested in rapid price appreciation. Investor expects a moderate rate of return in
exchange for assuming a moderate amount of risk while speculator expects a high
rate of return in exchange for high risk assumed.

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
Name: _______________________________ Score: _______
Year and Section: __________ Date: ________

INTENDED LEARNING ACTIVITY

“Observation to the Environment”

Instruction: In a sheet of paper, write down your own personal observation with
regards to investment opportunities available in your locality.

Rubrics:
26-30 points The answer is well-written, organized and the idea is
very relevant to the question and has no grammatical or
spelling errors.
16-25 points The answer is fairly written, and the idea is almost
relevant to the question and has one grammatical or
spelling error.
11-15 points The answer is somewhat relevant to the questions and
has two to three grammatical or spelling errors.
6-10 points The answer is unclear and has four grammatical or
spelling errors.
1-5 points The answer does not address the question and has
more than five grammatical or spelling errors.

Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
Name: _______________________________ Score: _______
Year and Section: __________ Date: ________

ACTIVITY 1: REFLECTION

Instruction: Take a look at the picture and observe the objects. If you are an
investor, what does the picture says and the objects represent in the investment
process?

Scoring Rubrics:
Content 20
Grammar 5
Organization 10
Total 30 points

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Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz
ILOCOS SUR POLYTECHNIC STATE COLLEGE

Tagudin Campus

MODULE 1
Name: _______________________________ Score: _______
Year and Section: __________ Date: ________

ACTIVITY 2: REFLECTION

Instruction: This activity is an assessment of yourself whether you want to

become an investor or speculator considering the characteristics that have
been discussed earlier.

Scoring Rubrics:
Content 20
Grammar 5
Organization 10
Total 30 points

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Course Code: Fin 156

Descriptive Title: Investment & Portfolio Management Instructor: Mary Rose Supsup Abaniz