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CHAP 2 : INVESTMENT ALTERNATIVES, ADVANTAGES:
Low risk as it normally…
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ADVANTAGES:
- Low risk as it normally issued by goverment
- secured income in the form of interest payment
- principal payment and interest are guaranteed to be paid on time
- most treasury securities have low liquidity risk and can easily to be sold for cash
DISADVANTAGE:
- Interest rates are low in comparison to other investment. As the interest rate will generally be lower than the rate of inflation, your treasury bills could actually lose value over time
- A significant amount of money must be provided by investor to buy treasury bills as they are sold in minimum denomination of RM10,000
ADVANTAGES:
- Monies are saved and secured
- Earn income in the form of interest or bonus
- Highly liquid - money can be withdrawn easily
- By keeping money in Lembaga Tabung Haji (LTH), provides Muslims to have sufficient savings in performing their haj.
DISADVANTAGES:
- Earn low income since it has a low risk
- Need high discipline from the saver due to monies are easily withdrawn even if there is no urgent need
- Return will only received after a certain fixed period
ADVANTAGES:
- Interest earned on fixed deposits is higher than savings account
- The account is safe
- The risk is low
DISADVANTAGES:
- No interest earned if saving is withdrawn before the maturity period
ADVANTAGES:
- Less risk - investments are spread over a large number of counters
- Stable and steady returns of capital gain and dividend
- Managed by professional fund managers
- Feasible way to participate in the stock market
- Good hedge against price volatility
- Source of collateral when taking a loan from a bank or financial institution
- Highly liquid - easily bought and sold
DISADVANTAGES:
- Lesser profits or return due to the investment is highly diversified
- Investors do not have voting right
- Market price of shares subjected to market price fluctuation
ADVANTAGES:
- Better hedge against inflation
- Expected returns are higher
- Capital appreciation on investment through voting rights
- Ownership position in a corporation through voting rights
- Enjoyment pre-emptive rights
- Possibility of being elected to the BOD
- Easily marketable at the stock exchange
ADVANTAGES:
- Bondholders face lesser risk
- provide a steady stream of income for the investor in the form of interest payment
- bondholders have a priority claim on income and assets
- bond prices fluctuate according to changes in interest rates - provide opportunity for capital gains to the investors
- bond investments could help balance the investors portfolio mix
- bondholders is guaranteed of receiving the principal/face value despite changes in the price/value of the bond
DISADVANTAGES:
- Bear the highest risk in the company
- Possibility of not receiving residual assets of the company in case of liquidation
- Company is not obligated to pay dividend if directors think that the company is not in the position to do so
- Dividends do not enjoy tax shields and tax rate is high
DISADVANTAGES:
- Return is fixed
- Bondholders are not an owner but they are creditors to the company
- Bond is not a good hedge against inflation because of the fixed return
- Subject to call risk - firms may call certain bonds prior to its maturity, could disrupt expected cash flow and reduce rate of return
ADVANTAGES:
- Marketable in KLSE
- The earnings are guaranteed in the form of fixed dividens for regular time periods
- Preferred stockholders generally receive higher rate of return than bondholders to compensate the slightly greater risk they assume
- It is less risky than common stock in case of liquidation. More risky position than corporate bondholders
DISADVANTAGES:
- The return on preferred stocks is limited or fixed amount.
- Investors cannot participate in excess earnings.
- Investors do not have voting rights unless the company is found to be in some financial distress.
ADVANTAGES:
- Some strategies like buying options, allows you to have unlimited upside with limited downside
- unique strategies
- low capital requirements
DISADVANTAGES:
- must have the expertise and knowledge to understand the mechanism of trading/investing in options
- extra costs involved such as commissions and these extra costs may not make the actual investments worth it
- They are also complicated to beginners, making them a poor choice for novice investors. Most beginners and even some advanced investors, think they understand them when they don't.
ADVANTAGES:
- offers high rates of return, as the risk high, hence probability.
- good hedge againts inflation.
- invest commodities indirectly at lower risk.
DISADVANTAGES:
- high risk and high capital.
- needs expertise and knowledge.
- extra time to monitor the market.
- volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
- leverage magnifies both gains and losses.
- a trade can go against you quickly and you could lose your initial deposit and more before you are able to close your position.
DISADVANTAGES:
- Involves a great sum of capital
- Requires a lot of time and energy in managing real property
- Involves large amount of money
- Time consuming in renegotiations of loan arrangement
- Risk of leasing or renting out to tenants
ADVANTAGES:
- Financing is flexible and obtainable from banks
- Value appreciates and provides direct rental/business income or capital gains
- Values tend to increase - protection against inflation
- Safe and returns are secured
ADVANTAGES:
- Rate of return can be high as the prices increases
- Reduce the risk by diversifying in collectibles
- Can be sold during financial difficulties
- Most items are protected by insurance
DISADVANTAGES:
- Required a lot of time and energy to gather the collections - rare, scarce and difficult to get
- Must have networking or contacts
- Needs special skills and expertise
- Required a large capital
ADVANTAGES:
- Good hedge against inflation, higher inflation higher gold prices.
- provide high returns.
- psychological enjoyment.
- hedge against political risks.
DISADVANTAGES:
- Risk - foreign exchange risk, gold price risk.
- no dividends or interest payment.
- need special knowledge on how to invest in gold.