Introduction To Investment (Handout)

INTRODUCTION TO INVESTMENT (HANDOUT)
INVESTING
is the act of allocating money or other resources with the expectation of generating a
positive return, such as profit, income, or appreciation in value. It's a fundamental aspect of
personal finance and can play a crucial role in securing your financial future.
INVESTMENT
An investment is an asset or item acquired to generate income or gain appreciation.

Appreciation is the increase in the value of an asset over time. The key element of investment is
that you're putting your money at risk in the hopes of achieving a future financial gain. It's
important to note that investments involve a degree of uncertainty, and there's always the
possibility of losing some or all of your initial investment.
TYPES OF INVESTMENT
BANK DEPOSITS
Bank deposits involve placing money in a bank account, such as a savings account or a
certificate of deposit, which earns interest over time.
INSURANCE
Insurance products, such as life insurance or health insurance, provide financial

protection against unexpected events. While not traditionally viewed as investments, some
insurance policies, like whole life insurance, offer a cash value component that can grow over
time.
REAL ESTATE
Real estate investments involve buying and holding properties, such as houses,
apartments, or commercial buildings, with the aim of generating rental income or capital
appreciation. Real estate can be a substantial investment but also carries a higher risk
compared to more liquid assets.
HARD ASSETS
Hard assets encompass tangible assets like gold, silver, precious stones, or collectibles.
These investments are often considered a hedge against inflation and economic uncertainty, as
they can retain value during periods of economic instability.
MUTUAL FUNDS
Mutual funds pool money from multiple investors to invest in a diversified portfolio of
stocks, bonds, or other assets. They offer a convenient way to diversify your portfolio and
access professional investment management at a relatively low cost.
STOCKS
Stocks represent ownership shares in publicly traded companies. Investing in stocks

allows you to participate in the growth and profitability of a company, but it also carries a higher
risk compared to less volatile investments.
BONDS
Bonds represent a loan made to a company or government entity. Investors receive

regular interest payments and the principal amount upon maturity. Bonds are generally
considered less risky than stocks but can be affected by interest rate changes.
ADVANTAGES AND DISADVANTAGES OF EACH TYPE OF INVESTMENT
ADVANATAGES OF BANK DEPOSITS
1. Known income based on outstanding principal and current interest rate

2. Shorter, if any, holding period
DISADVANTAGES OF BANK DEPOSITS
1. Lower interest income

2. Settlement risk if the bank closes
ADVANATAGES OF INSURANCE
1. Give the insured individual/entity the cash/capital to deal with unforeseen adverse
financial consequences
2. May provide certain tax benefits (i.e. tax deductibility, tax-free provisions)
DISADVANTAGES OF INSURANCE
1. Insurance premiums may be costly
2. On some of traditional insurance plans, no sickness/death until a certain age may mean
not getting any benefits at all
ADVANTAGES OF REAL ESTATE
1. There are typically tax deductions and benefits, depending on what you own.
2. Offer more liquidity than owning rental property you need to sell.
DISADVANTAGES OF REAL ESTATE
1. Real estate is not liquid. You may have a tough time selling it quickly.
2. There are constant ongoing expenses to maintain a property.
3. Owning rental property is a lot of work. You have to handle managing it, cleaning it, and
making repairs.
ADVANTAGES OF HARD ASSETS
1. Generally, appreciates overtime because land get scarce

2. Can be a source of recurring rental income
DISADVANTAGES OF HARD ASSETS
1. Huge capital needed, financing can be difficult

2. Illiquid or difficult to sell
ADVANTAGES OF MUTUAL FUNDS
1. Mutual funds are easy and convenient to buy.

2. You earn money when the assets in the mutual fund rise in value.
DISADVANATAGES OF MUTUAL FUNDS
1. The management team could be poor or make bad decisions

2. Pay management fees
ADVANTAGES OF STOCCKS
1. If the stock goes up, you can sell it for a profit.

2. Stocks tend to offer higher potential returns than bonds.
DISADVANTAGES OF STOCKS
1. There are no guaranteed returns. For instance, the market could suddenly go down.
2. The stock market can be volatile. Returns can vary widely from year to year.
ADVANTAGES OF BONDS
1. Bonds offer regular interest payments.

2. Bonds tend to be lower risk than stocks.
DISADVANTAGES OF BONDS
1. The rate of returns with bonds tends to be much lower than it is with stocks.
2. Bonds can decrease in value during periods of high interest rates.
THE RISK OF INVESTING
CURRENCY RISK
The risk, also called as the exchange rate risk, affects the business operations or the
investments value due to changes in exchange rate.
EQUITY RISK
The risk is about the increase or decrease of shares market value.
INFLATION RISK
The risk results to a possible decrease in assets value or income when inflation shrinks
the purchasing power of a currency. Inflation decreases money’s value, invested or not, at a
particular rate.
COUNTRY RISK
The risk concerns about the possible foreign stock's volatility and foreign government
bonds default because of political event, financial event, or both in a particular country.
INTEREST RATE RISK

The risk refers to a possible decrease in a security’s value such as bonds because of an
increase in interest rate. A way to reduce this risk is to diversify the fixed income investments
duration.
PURCHASING POWER RISK
The risk refers to how inflation will erode a portfolio of securities purchasing power.
EVENT RISK
It is the uncertainty that such an event may happen. For example, an event such as
taking on additional debt or company’s recapitalization might drop a bond’s rating.

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An investment is an asset or item acquired to generate income or gain appreciation.

Insurance products, such as life insurance or health insurance, provide financial

Stocks represent ownership shares in publicly traded companies. Investing in stocks

Bonds represent a loan made to a company or government entity. Investors receive

ADVANTAGES AND DISADVANTAGES OF EACH TYPE OF INVESTMENT

ADVANATAGES OF BANK DEPOSITS

1. Known income based on outstanding principal and current interest rate

DISADVANTAGES OF BANK DEPOSITS

1. Lower interest income

1. Insurance premiums may be costly

ADVANTAGES OF REAL ESTATE

DISADVANTAGES OF REAL ESTATE

ADVANTAGES OF HARD ASSETS

1. Generally, appreciates overtime because land get scarce

DISADVANTAGES OF HARD ASSETS

1. Huge capital needed, financing can be difficult

ADVANTAGES OF MUTUAL FUNDS

1. Mutual funds are easy and convenient to buy.

DISADVANATAGES OF MUTUAL FUNDS

1. The management team could be poor or make bad decisions

1. If the stock goes up, you can sell it for a profit.

1. Bonds offer regular interest payments.

THE RISK OF INVESTING

The risk is about the increase or decrease of shares market value.

INTEREST RATE RISK

PURCHASING POWER RISK

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