Business Finance

Introduction to Investments

by: Gloria M. Ducut,DBA

Grade:12
2nd Semester Quarter IV
 Introduction to Investments
• Investment definition
• Types of Investment
"Money isn't everything, but happiness
alone can't keep out the rain."
Savings on Php10,000 under different
LC 23
types of investment
Investment Type Holding Value of % Return
Period PHP10,000
Today

Bank (Time deposit) 10 years PHP14,000 40%

Stocks (Universal Robina Corporation 1,305%
“URC”) 10 years PHP140,500

Stocks (DMCI Holdings, Inc. “DMC”) 12 years PHP3,204,878 31,949%

Mutual funds (Philequity PSE Index Fund) 5 years PHP23,426 134%
Mutual funds (Sunlife Prosperity 108%
Philippine Equity Fund) 5 years PHP20,805
How money loses its value in buying
LC 23
material things
Item Purchase Price Holding Period Value % Return
Today

iPhone 4 PHP29,200 (October 3.5 years PHP8,900 -70% return

32gb 2011)

PlayStation 4 PHP22,500 (November 1.5 years PHP18,000 –20% return

2013)

Toyota Vios PHP850,000 (December 7.5 years PHP300,000 -65% return

2007)
 Investments Defined
• Commitment of money that is expected to generate
additional money
• investment is the application of money or other
assets in the hope that in the future it would
appreciate or generate more income.
 Why do individuals invest?
• To achieve a higher level of consumption in
the future by forgoing consumption today
• To improve our welfare in the future
• Investments help us achieve tradeoff between
current consumption and future consumption
 Types of Investments LC 23

• Stocks
• Bonds
• Mutual Funds
• Real Estate
• Bank Deposits
• Hard Assets
• Insurance
 Types of Investments LC 23

The different types of investments will be

grouped into three:
(1) fixed income and equities,
(2) alternatives to fixed income and equities
and
(3) other investment assets
 Types of Investments LC 24

Fixed income and equities

STOCKS
 Stocks

• An investment that represents ownership

in a company or corporation.
 Types of Investments LC 24

Fixed income and equities

BANK DEPOSITS
 Types of Investments LC 24

Fixed income and equities

BONDS
 Bonds

• A security representing a loan of money

from a lender to a borrower for a set time
period, which pays a fixed rate of interest.
 Types of Investments LC 24

Alternative to Fixed income and equities

MUTUAL FUNDS
 Mutual Funds

• An investment that pools money from

several investors to buy a particular type
of investment, such as stocks.
 Types of Investments LC 24

Alternative to Fixed income and equities

UNIT INVESTMENT TRUST FUND(UITF)
 Types of Investments LC 24

Other Investment Assets

CURRENCIES
 Types of Investments LC 24

Other Investment Assets

COMMODITIES
 Types of Investments LC 24

Other Investment Assets

REAL ESTATE
 Real Estate

• An investor buys pieces of property, such

as land or a building, in hopes of
generating a profit.
 Types of Investments LC 24

Other Investment Assets

INSURANCE
 Matching type quiz

  (A) Investment Asset (B) Description

___1 Stocks (equity) A. An investment that is made up of a
pool of funds collected from many
investors for the purpose of investing
in stocks, bonds, and similar assets
___2 Bank deposits (fixed income) B. Land and any improvements on it
___3 Mutual funds C. Type of security that signifies
ownership in a corporation and
represents a claim on part of the
corporation's assets and earnings
___4 Real estate D. A contract (policy) in which an
individual or entity receives financial
protection or reimbursement against
losses from an insurance company
___5 Insurance E. Money placed into a banking
institution for safekeeping
 Matching type quiz
 
(A) Investment Asset (B) Advantage/Disadvantage

___1 Stocks (equity) A. Disadvantage: On some of

traditional plans, no sickness/death
until a certain age may mean not
getting any benefits at all
___2 Bank deposits (fixed income) B. Advantage: Shorter, if any, holding
period vs. bonds
___3 Mutual funds C. Advantage: Can be a source of
recurring rental income
___4 Real estate D. Disadvantage: Riskiest of all assets
(can lose as much as 50% of their
money in one day

___5 Insurance E. Disadvantage: Pay management

fees
 Investment Risk LC 25

• “Risk is the chance that an investment’s actual

return will be different than expected. Risk
includes the possibility of losing some or all of
the original investment.” (Source:
investopedia.com)
•  
 Investment Risk LC 25

Risk Definition Also Known As Examples

Changes in interest
Uncertainty inherent Market risk,
Systematic rates, recession,
to the entire market undiversifiable risk
wars

Rumors of a
potential default,
Uncertainty that Specific risk, labor strikes,
Non-systematic comes with the diversifiable risk, landslide in a mining
company or industry residual risk company that
disrupted the
operations
 Risk vs. Return
• On average, stocks have a high rate of return
– The increase or decrease in the original purchase price of
an investment
• Higher rate of return = greater risk
– Uncertainty about the outcome of an investment
• Stocks provide portfolio diversification
– Money invested in a variety of investment tools
 Short-term Investment
Strategies
• Buying on margin is where an investor
borrows part of the money needed to
invest in a stock from a brokerage firm.
– There is a 50% margin requirement.
– If you want to purchase Php2,000 worth of
stock you can borrow up to Php1,000 to make
the purchase.
Long-term Investment Strategies

• Diversification is spreading your assets

among different types of investments to
reduce risk.
– Don’t put all your eggs in one basket.
Long-term Investment Strategies

• Buy and hold technique is where an

investor buys stock and holds on to it for a
number of years.
– During that time you are paid dividends and
the price of the stock may go up.
 References
• Finance websites
• Cayanan, A. & Borja (forthcoming). Business
Finance. Quezon City. Rex Bookstore.
End of Chapter 6