Lesson 3

Disadvantages of
Different Types of
Investments
Objective:

 Indicate the disadvantages of

each type of investment
Review:

What are the advantages of the following types of

investment?
Stocks
Bonds
Mutual funds
Insurance
Real state
Disadvantages of
Different Types of
Investment
1. Fixed Income and Equities
Investment Type Disadvantages
A. Stocks (Equity)  No guaranteed returns.
Riskiest of all assets(can
lose even more than 50%
of one’s money in one
day.
B. Bank Deposits (Fixed  Lower interest income
Income) vs. bonds
 Settlement risk if the
bank closes
1. Fixed Income and Equities
Investment Type Disadvantages
C. Bonds (Fixed Income)  If not held until maturity and
pre-terminated, investor can
gain or lose depending on
the prevailing interest rates
at the time of pre-
termination. If interest rates
are higher, investor in bonds
can lose in the pre-
termination
2.Alternative to fixed income and equities
Investment Type Disadvantages
A. Mutual Funds  Pay management fees
 Values can also fluctuate
just like the stock
market.
 High Expense Ratios and
sales charges
 Management abuses
 Tax inefficiency
 Poor trade execution
2.Alternative to fixed income and equities
Investment Type Disadvantages
B. Unit Investment No shareholder
trust funds (UITF) rights for
investors such as
dividends and
voting rights.
3. Other Investment Assets

Investment Type Disadvantages

A. Currencies  Volatile and trades 24-
hours a day (must be
closely monitored)
 Generally uses margins
trading which allows
clients to bet more than
their capital.
3. Other Investment Assets

Investment Type Disadvantages

B. Cryptocurrencies /  Can be used for illegal transactions
Digital Currencies  Data losses can cause financial losses
 Decentralized but still operated by
some organization
 Some coins not available in other fiat
currencies
 Adverse effects of mining on the
environment
 Susceptible to hacks
 No refund or cancellation policy
3. Other Investment Assets

Investment Type Disadvantages

C. Commodities  Same as currencies
 Impractical to invest
directly considering
storage, transportation
and insurance costs
involved
3. Other Investment Assets
Investment Type Disadvantages
D. Real Estate  Huge capital needed,
financing can be
difficult
 Maintenance of the
property needed to
preserve its value
 Illiquid or difficult to
sell
3. Other Investment Assets
Investment Type Disadvantages
E. Insurance  Insurance premiums may be costly
 On some traditional insurance plans,
no sickness/death until a certain age
may mean not getting any benefits at
all
 Some insurance companies can go
bankrupt if companies fail to factor
significantly adverse unforeseen
circumstances.
Activity #1

Direction: Compare and contrast the

disadvantages following types of
investments.
1. Currencies vs. Cryptocurrencies
2. Stocks vs. Bonds
3. Mutual fund vs. UITF
Activity # 2
Direction: Write T if the statement is correct and F if it is not about
the disadvantages of the types of investment.

1. Some insurance companies can go bankrupt if companies fail to

factor significantly adverse unforeseen circumstances. T
2. Poor trade execution for mutual funds.
T
3. Stocks for settlement risk if the bank closes. F-(bank deposits)
4. Stocks have no guaranteed returns T
5. Real state needs huge capital needed, financing can be difficult. T
 Application:
A. Stocks (Equity)
(Oral)

Explain briefly the questions below:

1. Why is it important to know about the
disadvantages of the type of investment
that we are going to put up?
 Generalization:
A. Stocks (Equity)

.
1 I have learned that _____________.
2. I have realized that ______________.
3. I will apply what I have learned___________.
Assessment:
Direction: (Paper and pen). Match the investment type in column A
with the disadvantage in Column B.

Column A Column B
1. Mutual Funds a. Huge capital needed, financing can
be
difficult
2. Real Estate b. premiums may be costly
3. Insurance c. High Expense Ratios and sales
charges
4. Stocks d. Lower interest income vs.
bonds
5. Bank Deposits e. No guaranteed returns
f. Same as currencies
Assessment:

Answer:
1. c
2. a
3. b
4. e
5. d

A. Stocks (Equity)