FINANCE

WEEK 1
INTRODUCTION TO INVESTMENT

TYPE OF INVESTMENTS

Investment Holding Value of % Return

Type Period PHP 10,000
Today
Bank (Time 10 years PHP 14,000 40%
deposit)
Stocks 10 years PHP 1,305%
(Universal 140,500
Robina
Corporation
“URC”)
Stocks (DMCI 12 years PHP 31,949%
Holdings, Inc. 3,204,878
“DMC”)
Mutual funds 5 years PHP 23,426 134%
(Philequity PSE
Index Fund)
Mutual funds 5 years PHP 20,805 108%
(Sunlife
Prosperity
Philippine
Equity Fund)

THREE TYPES OF INVESTMENT:

1. Fixed income and equities
2. Alternatives to fixed income and equities
3. Other investment assets

❖ FIXED INCOME AND EQUITIES

Investment Type Advantages Disadvantages

1. Stocks (Equity) ▪ Unlimited ▪ No guaranteed

- Type of Upside. returns.
security that ▪ Riskiest of all
signifies assets (can lose
ownership in even more than
a corporation 50% of their
and money in one
represents a day)
claim on part
of the
corporation’s
assets and
earnings.
2. Bank Deposits ▪ Known ▪ Lower interest
(Fixed Income) income income vs.
- Money placed based on bonds.
into a banking outstanding ▪ Settlement risk
institution for principal if the bank
safekeeping. and current closes.
interest
rate.
▪ Shorter, if
any,
holding
period vs.
bonds.
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3. Bonds (Fixed ▪ Known If not held until ❖ Voting Right

income) periodic maturity and pre- - right to be heard on certain
Debt investments payments for terminated,
policies that the company wants
where an investor a certain investor can gain
loans money to an period of or lose depending to implement.
entity which time. on the prevailing
borrows the funds Can’t lose money interest rates at ❖ Alternatives to fixed income and
for a variable or if bond investment the time pre- equities
commonly, fixed is held until termination. If
interest rate. maturity. interest rates are
Investment Advantages Disadvantages
higher, investor in Type
bonds can lose in 1. Mutual funds ❖ Give small ❖ Pay
the pre- - An investors management
termination. investment access to fees.
that is made professionally ❖ Values can
up of a pool of managed, also fluctuate
How can you access these investment assets?
funds diversified just like the
▪ STOCK collected from portfolios of stock market.
1. Go to a stock brokerage firm or a bank with a many equities,
stock brokerage arm and open a stock market investors for bonds and
account by signing the necessary account the purpose other
of investing in securities,
opening forms.
stocks, bonds, which would
2. Minimum capital amount, depending on the and similar be quite
broker, will be required to be deposited to assets. difficult (if not
successfully open the account. impossible) to
3. Most of these stock brokerage firms now create with a
small amount
provide online access to their client’s stocks
of capital.
account. 2. Until ▪ Same as ▪ No
investment trust mutual funds. shareholder
▪ BANK fund (UITF) ▪ Easier access rights for
1. Go to a bank and open a bank account (savings, - Similar to a because investors such
mutual fund clients can as dividends
time deposit, etc.) by signing the necessary
but is open an and voting
account opening forms. managed by account in any rights.
2. Minimum amounts will also be required banks. branch of the
depending on which bank and the type of bank bank near
deposit they want to open. them.
3. Some banks also now offer online access to their ▪ No entry and
management
client’s bank accounts where they can monitor fees.
their account, pay bills, transfer funds, etc. via
internet. How can you access these investment assets?
▪ MUTUAL FUND
▪ BONDS 1. Go to an insurance company or a financial
1. Same as bank deposits, go to a bank and sign the institution that offers mutual funds (i.e. Philequity,
necessary bond acquisition forms. Sunlife, Manulife, etc.) and sign the necessary
2. Minimum purchase of bonds is normally higher account opening forms.
relative to stocks and bank deposits. 2. As with stocks, minimum amounts will be required
3. Clients may also view their bond’s performance to successfully open the account.
online depending from which bank they bought 3. Some of these financial institutions also provide
it from. online access to monitor their mutual fund
performance.
ALTERNATIVE INVESTMENT OPTIONS
❖ Management Fee ▪ UNIT INVESTMENT TRUST
- the amount clients pay to the 1. Same procedures as a mutual fund except that
professionals who manage their mutual UITF’s are accessed through banks.
funds, normally a certain percentage of
portfolio value. DEFINITION OF TERMS:
▪ Liquidity – ability to be converted into cash, the
❖ Dividend higher the liquidity the better.
- distribution of the company’s income to ▪ Margin Trading – allows clients to trade more than
its shareholders. their capital. It can magnify both earnings and
losses.
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▪ Inflation – general increase in prices.

▪ Hedge – investment that reduces the risk of 4. Insurance ❖ Gives the ❖ Insurance
adverse price movements in an asset. - A contract insured premiums may
▪ Diversification – process of investing in (policy) in individual/entity be costly.
which an the cash/capital ❖ On some of
different kinds of assets to lessen exposure in
individual or to deal with traditional
market/price volatility. entity receives unforeseen insurance
▪ Geopolitical risks – “risks of one country's financial adverse plans, no
foreign policy influencing or upsetting protection or financial sickness/death
domestic, political, and social policy in another reimbursement consequences. until a certain
against losses ❖ May provide age may mean
country or region”
from an certain tax not getting any
▪ Correlation – how price of an asset moves with insurance benefits (i.e. tax benefits at all
respect to another asset company (i.e. deductibility, (that’s why
▪ Escalation Clause – agreement to raise prices in life insurance, tax-free VUL’s are now
the future depending on certain circumstances educational provisions) very
plans, VUL) prevalent).
(i.e. increase in inflation leading to higher rental
❖ Some
rates). insurance
▪ Insurance Premium – the amount paid on a companies can
regular basis to the insurance company in go bankrupt
return for the insurance/protection provided. (i.e. College
Assurance
▪ VUL – Variable Universal Life insurance or a life
Plan) if
insurance that offers both death benefit and companies fail
investment features. to factor
significantly
❖ Other investment assets adverse
unforeseen
Investment Type Advantages Disadvantages circumstances.
1. Currencies ❖ Largest market ❖ Volatile and
- Generally in the world in trades 24- How can you access these investment assets?
accepted form terms of hours a day ▪ Currencies and Commodities
of money, trading (must be 1. Open a foreign currency/forex account (i.e. oanda,
including coins volume, so closely
and paper much liquidity. monitored). fxcm, cboe, etc.) online. Currencies and
notes, which is ❖ Unlike stocks, ❖ Generally uses Commodities
issued by a commodities, margin 2. Minimum amount required for forex accounts
government etc., currency trading which vary and are usually higher vs. stocks and usually
and circulated asset itself is a allows clients in USD.
within an medium of to bet more
economy (i.e. exchange than their 3. Investments may also be monitored online.
USD, EUR, JPY). which people capital (may
can use to also be an ▪ Real Estate
transact. advantage). 1. Contact/visit real estate companies directly (i.e.
2. Commodities ▪ Natural hedge ▪ Same as Ayala Land, Megaworld, SM Prime, etc.).
- A basic good against currencies.
used in inflation. ▪ Impractical to
2. Contact real estate brokers.
commerce that ▪ Negatively invest directly
is correlated with considering ▪ Insurance
interchangeable equities and storage, 1. Contact/visit insurance companies directly (i.e.
with other bonds (may be transportation Sunlife, Prulife, Manulife, etc.).
commodities of used for and insurance
the same type diversification). costs
2. Contact insurance agents.
(i.e. gold, nickel, ▪ Hedge against involved.
oil) geopolitical Characteristics of Investment Scam
risks. 1. Unexpected and unsolicited phone calls, emails,
3. Real Estate ▪ Generally ▪ Huge capital letters, or personal visits from strangers who are
- Land and any appreciates needed, offering investments.
improvements over time financing can
on it (i.e. land, because land be difficult. 2. Above market returns.
house and lot, gets scarce. ▪ Maintenance 3. Low risk, no risk, or a guarantee.
condominiums) ▪ Have relatively of the 4. Giving custody and possession of invested capital
low property to the investment manager.
correlations needed to 5. Aggregating assets into a pool with other investors.
with other preserve its
asset classes value. 6. Investing on the spot.
(may be used ▪ Illiquid or 7. Special connections, secrets, or inside information
for difficult to sell. not available to the public.
diversification)
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8. Invitations to join exclusive investment organizations.

9. Opportunities for the “next big thing” or a “once in a
lifetime” deal.
10. Sophisticated terminologies.
11. Investments offered from overseas.
12. No prospectus/offering memorandum.
13. Investments that cannot be verified.
14. Sold by unlicensed/unregistered people.
15. Troubles cashing out of the investment.
16. Salespeople discouraging second opinion.
17. Salespeople encouraging investing on the basis of
trust.
18. Salespeople asking potential clients to put their life
savings into a single investment.
19. Salespeople encouraging potential clients to borrow
money for it.
20. Salespeople requesting for the client’s bank account
details.
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WEEK 3
DIFFERENT TYPES OF INVESTMENT RISK AND WAYS
TO MINIMIZE AND REDUCE THEM
2. Conducting due diligence.
▪ RISK ▪ Research about the investment instruments,
- It refers to the degree of uncertainty and/or checking out the investment’s history,
potential financial loss inherent in an earnings’ growth, management team and debt
investment load.
▪ Compare with other similar investment
FUNDAMENTAL TYPES OF RISKS: products and other asset in investment
1. Systematic Risk portfolio.
- has effects that are wider in scope, that it is 3. Asset Allocation.
almost impossible for an investor to avoid ▪ It is necessary to evaluate holdings at least
this type of risk. once a year to assess whether there is a need
- also known as market risk, undiversifiable to buy or sell assets to bring back the portfolio
risk to proper asset allocation.
- measurement Beta (β) 4. Diversification of investment portfolio.
2. Unsystematic Risk ▪ A risk management strategy of combining a
- also referred to as specific risk, which affects variety of assets to reduce overall risk in an
only a small number of assets. investment portfolio. One of its purpose is
- also known as specific risk, diversifiable risk, portfolio risk management.
residual risk ▪ This lowers investments’ volatility as changes
- measurement Standard deviation (σ) in market prices of different investment can
happen at different time intervals.
OTHER TYPES OF RISKS: ▪ This result in a more balance risk and return or
1. Business risk risk is spread over a variety of products.
- When a company makes inadequate profits 5. Monitoring of Investment.
or goes bankrupt. ▪ Regular reallocation of resources is necessary for
2. Volatility risk control purposes.
- Even when companies aren’t in danger of ▪ Proper allocation of investment depends on such
failing, their stock price may fluctuate up or factors as age, investment period and
down. investment temperament.
3. Inflation risk ▪ It is necessary to evaluate holdings at least once
- Is a general upward movement of prices. a year to assess whether there is a need to buy
- It reduces the purchasing power, which is a or sell to bring back the portfolio to proper asset
risk for investors receiving a fixed rate of allocation.
interest.
4. Interest rate risk
- Interest rate changes can affect an
investment’s value (example bond).
5. Liquidity risk
- This refers to the risk that investors won’t
find a market for their securities, potentially
preventing them from buying or selling when
they want.

WAYS AND MEANS TO MINIMIZE INVESTMENT RISKS

❖ Investment Risks
- Risk management is the process of
identification, analysis and acceptance or
mitigation of uncertainty in investment
decisions. Risk is inseparable from return in
the investment world.

1. Determination of tolerance to different kinds of

risk.
▪ Understanding the type of risk, of the
combination of types of risk, is essential in
reducing those risks.
▪ If there is high net worth and substantial
risk capital, the risk tolerance is higher.
▪ But if the net worth and risk capital is
modest or not much, it’s probable to be
better off with conservative, low risk
investment.
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WEEK 4
RISK MEASURE AND RISK REDUCTION

RISK MEASURE AND RISK REDUCTION 4. Add the squared difference.

1. Risk Measure – Single asset
- A basic risk measure for a single asset is the
variance and standard deviation (square
root of the variance) of returns. The variance
(σ 2) is computed as follows:
Sum = 0.00529870
5. Divide by the number of periods.
Variance = 0.00529870 / 5years = 0.00105974

Where:
Rt = Return for a Particular Period
Rmean = Average return 2. Risk-Return Measure
N = Number of Periods - Assets should be compared based on both risk and
return. The coefficient of variation is a simple risk-
COMPUTING THE VARIANCE INVOLVES THE return measure to compare various assets.
FOLLOWING STEPS:
Coefficient of variation = σ/Rmean
1. Get the mean. Using our Stock, A example, the coefficient of variation is
2. Get the difference of each return and the mean. equal to:
3. Get the squared difference. Coefficient of variation = 0.0326/0.1504 = 0.21676
4. Add the squared difference.
5. Divide by the number of periods. RISK-RETURN MEASURE
▪ Based on this simple measure, investors should
prefer assets with a low coefficient of variation.
▪ Investment risk is the idea that an investment will
not perform as expected, that its actual return will
deviate from the expected return. Risk is measured
by the amount of volatility, that is, the difference
between actual returns and average (expected)
returns. This difference is referred to as the standard
deviation. Returns with a large standard deviation
1. Get the mean – average return for the years (showing the greatest variance from the average)
period. have higher volatility and are the riskier investments.
Rmean = 75.20% / 5 years
= 15.04% RISK REDUCTION
▪ From a portfolio perspective, risk, as measured by
2. Get the difference of each return and the mean. the portfolio variance or standard deviation, can be
Stock A In Percentage In Decimal reduced by combining assets whose returns do not
2016 13.25% - 15.04% -1.79% -0.0179 move in the same direction or at least do not move
2017 16.25% - 15.04% 1.21% 0.0121 perfectly together.
2018 13.80% - 15.04% -1.24% -0.0124
2019 20.70% - 15.04% 5.66% 0.0566
2020 11.20% - 15.04% -3.84% -0.0384

3. Get the squared difference.

Stock A In Percent In Square
age Decimal Difference
2016 13.25% - 15.04% -1.79% -0.0179 0.00032041
2017 16.25% - 15.04% 1.21% 0.0121 0.00014641
2018 13.80% - 15.04% -1.24% -0.0124 0.00015376
2019 20.70% - 15.04% 5.66% 0.0566 0.00320356
2020 11.20% - 15.04% -3.84% -0.0384 0.00147456
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WEEK 5
MONEY MANAGEMENT PHILOSOPHIES
MANAGING PERSONAL FINANCES
▪ Personal Finance
- It involves analyzing current financial
positions, projecting short-term and long-
term funding needs, and executing a plan to
fulfil those needs considering financial
constraints.
STEP OF THE PERSONAL FINANCIAL PLANNING PROCESS
1. Objective Setting
▪ Quantify monetary objectives with definite
time frames.
▪ Prioritize objectives.
▪ Examine these objectives with an
individual’s resources and limitations.
2. Data Gathering
▪ Use survey, questionnaires, and Monitoring
interview to gather quantitative and
qualitative information from the individual.
▪ Quantitative – for assessing financial status
(investment, cash flow, liabilities etc.)
▪ Qualitative – to identify individual’s goals
and objective, lifestyle, risk- tolerance etc.
3. Data Analysis
▪ Analyze the individual’s financial position
and cash flow.
▪ Review legal papers ( insurance policies,
trust agreement etc.).
▪ Evaluate objectives vis-vis the individual’s
resources and economic conditions.
4. Financial Plan Recommendation
▪ Propose financial products.
▪ At this point, the individual can comment on
the proposed solutions.
5. Plan Implementation
▪ Assist the individual in the execution of the
recommended financial plan.
▪ Implementation may involve other entities
so assist the individual in dealing with the
parties involved in the execution of the
financial plan.
6. Plan Monitoring
▪ Review the financial plan periodically to
evaluate changing market conditions
(economic conditions, taxes, interest rates,
etc.)
▪ Evaluate the financial plan regularly to see if
it effectively meets the individual’s goal and
objectives.
SIX KEY AREAS OF PERSONAL FINANCIAL
PLANNING
1. Financial Position
- Understanding of personal resources by
checking an individual’s net worth and cash flow.
- How much will be your Net worth = assets less
liabilities at a point in time
- Cash flow = expected sources of income less
expected expenses within a period (i.e. year)
- Helps in determining the time frame to which
personal goals can realistically be met.
May need to answer the following questions:
▪ Do they have a clear understanding of their goals?
▪ How do they track their income, expenses, and net
worth?
▪ What financial benefits do they get from their
employer?
2. Adequate Protection
- Analysis of protection needed for unforeseen
risks.
- Includes risks of liability, property, death,
disability, health, and long-term care
- Some insurance plan enjoy some tax benefits.
May need to answer the following questions:
▪ What things can they not afford to lose?
▪ How will they take care of their dependents?
▪ How have they planned for financial risks such as
disability, illness, long-term care, and death?
3. Tax Planning
- Management of when and how much taxes will
be paid.
- Understanding possible tax incentives,
deductions, rebates, etc. can have a significant
impact on managing personal finances given the
magnitude of taxes paid by an individual.
May need to answer the following questions:
▪ How do they manage their taxes?
▪ How do they plan the timing of income and
deductions for tax purposes?
▪ Are they comfortable with the tax environment
applicable to them?
4. Investment and Accumulation Goal
- Planning on wealth accumulation for large
purchases such as house, educational expenses,
investments.
May need to answer the following questions:
▪ What are their goals for wealth accumulation? (i.e.
education, home, business, retirement comfort,
etc.)
▪ How are their current investments performing to
meet their goals?
▪ How much will they need? When will they need it?
5. Retirement Planning
- Understanding the cost of retirement.
- Analysis of cash flows to come up with
investment plans that will meet the costs of
retirement in the future.
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May need to answer the following questions:

▪ How are they preparing for their retirement?
▪ How are their liabilities affecting their retirement
objectives?
▪ Do they think they can maintain their standard of
living during their retirement?

6. Estate Planning
- Planning for disposition of one’s assets after
death.
- Estate taxes paid to the government are huge, so
avoiding these taxes can significantly impact
one’s personal finances.
May need to answer the following questions:
▪ How should their assets be distributed upon death?
▪ How will their intentions be carried out? (i.e. will,
trust, power of attorney, etc.)

GOLDEN RULE OF PERSONAL FINANCE

INCOME – SAVINGS = EXPENSES

FOUR SIMPLE HABIT FOR PERSONAL FINANCIAL SUCCESS

1. Save Money
2. Avoid Debt
3. Invest
4. Protect Downside (Insurance diversification)
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WEEK 6 AND 8
MONEY MANAGEMENT PHILOSOPHIES
❖ Money Management
- refers to the processes of budgeting,
saving, investing, spending, or otherwise
overseeing the capital usage of an
individual or group.
NINE MONEY MANAGEMENT PHILOSOPHIES
1. The Basic Protection is Knowledge
- The first step to getting your personal
finances under control is to have a clear
understanding of where you are now.
Determine and list your assets, liabilities
and expenses. Yes, it may be too small
now, but it would soon grow when you
will later on have your job or business.
2. Nothing Happens without a Plan
- Financial planning is not limited to
companies alone. Individuals should also
practice financial planning to achieve
the set goals and objectives. One must
learn to practice budgeting to properly
account one’s resources. In the very
basic level, budgeting is easy.
3. The Time Value of Money
- Individuals must see the importance of
investment. One may invest his
resources through debt reduction,
bonds, banks, pension plans, active
businesses, real estate, stock market
and mutual funds. Do not forget to
select the best investment alternative by
determining its face value and future
value before deciding which investment
scheme is to be utilized.
4. Taxes Affect Personal Finance Decisions
- Before entering into an investment,
learn to analyze first the impact of taxes
in it. Almost 1/3 of the company’s or
individual’s income will go to taxes, thus;
learn to compare the returns of your
potential investment after tax basis.
5. Stuff Happens, or the Importance of Liquidity
- This is the only way to ensure you save
and grow your net worth. Most of us
spend beyond our means because we
fail to distinguish needs versus wants.
6. Waste Not, Want Not – Smart Spending
Matters/Live below your means
- Remember to liquidate your assets (cash
and cash equivalents). Liquidating assets
will allow the individual to cover
unexpected needs and expenses. Not
liquidating assets will lead the individual
to a fund irregularity and chaos.
7. Insure your needs
- It provides another margin of safety.
Most importantly, insurance is not a
primarily vehicle for creating wealth,
merely protecting it. One must protect
his resources from event risks including
natural calamities by securing insurance.
8. Risk and Return Go Hand in Hand
- One must have to understand that to
gain a higher return, he must face
certain risks.
9. Mind Games and Your Money
- Now that you already know the different
money management philosophies, it is
now time to adopt or practice managing
your personal finances. Yes, many of
these strategies entail order and control,
but, once you come to a decision, make
sure that you will stick to it.
PERSONAL FINANCE PHILOSOPHIES:
1. Dave Ramsey’s Envelope System
- involves budgeting each paycheck down
to the last cent, itemizing all expected
expenses. After itemizing all expenses,
fill envelopes for each category with the
pre-determined amounts.
2. Alexa von Tobel’s 50/20/30 System
- involves this breakdown for spending:
a. 50% of your take-home pay goes to
essentials, like rent, groceries, and
transportation
b. 20% goes to your future, like emergency
savings, debt repayment, and
retirement planning
c. 30% goes to everything else, like
shopping, travel, and entertainment.
3. Peter Dunn’s “Ideal Budget”
- involves this breakdown for spending:
a. 25% of your income on housing
b. 15% on transportation
c. 12% on groceries and dining out
d. 10% on savings
e. 10% on utilities and your phone bill
f. 5% on charity
g. 5% on clothing
h. 5% on entertainment
i. 5% on medical expenses
j. 5% on holidays and gifts
k. 3% on miscellaneous expenses
What is Money Scripts?
The History Behind Money Scripts
In 2011, financial psychologist Brad Klontz published
a study of 422 individuals that identified their
“money belief patterns.” He found four distinct
patterns, or “money scripts,” that evolved from
childhood as “typically unconscious trans-general
beliefs about money.”
❖ Money scripts
- are one’s deepest held convictions and
beliefs about money. These inform every
aspect of dealings with money.
FOUR DIFFERENT MONEY SCRIPTS
1. Money Avoidance
MENTAL INDICATORS
▪ Thinks money is bad, and rich people
are greedy or corrupt. Feels unworthy
of having money.
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BEHAVIOURS
▪ Trouble sticking to a budget, overspends
and is a compulsive buyer. Avoids looking
at bank statements.
EX. A lot of people believe they’re quoting the
Bible when they say, “Money is the root of all evil,”
but the actual Bible verse (1 Timothy 6:10) says,
“The love of money is the root of all evil.”

2. Money Worship
MENTAL INDICATORS
▪ Thinks money equals happiness, but
doesn’t believe he’ll have enough money
to be truly happy.
BEHAVIOURS
▪ Compulsive spender and revolves credit
card debt. Workaholism at the expense of
family relationships.
EX. If I could just buy [thing], I would be happy.
With enough money, I can handle anything.
Wealth is freedom.

3. Money Status
MENTAL INDICATORS
▪ Thinks self-worth is tied to net-worth.
Believed living the right way will result in
having their financial needs met.
BEHAVIOURS
▪ Pretends to be richer than in reality. Lies
about money to spouse or loved ones and
prone to gambling addiction.
EX. I don’t want people to think I’m poor.
I feel better about myself when I’m wearing
new clothes.
My money says something about me.

4. Money Vigilance
MENTAL INDICATORS
▪ Believes in saving money, and disagrees
with financial handouts. Anxious and
secretive about financial status.
BEHAVIOURS
▪ Alert and watchful over finances and
avoids buying on credit. Excessive
wariness or anxiety over money.
EX. People who are money vigilant frequently
evaluate their financial habits to make sure
they’re hitting their goals and making wise
decisions. Sounds perfect, right?