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CHAPTER 6 : INVESTMENT PLANNING - Coggle Diagram
CHAPTER 6 : INVESTMENT PLANNING
Preparing Investment Program
Performing Financial Checkup
• Work to balance budget
• Pay off high interest credit card debt first
• Start an emergency fund you can access quickly
• Have access to other sources of cash for emergencies
Getting Money to Start Investing
• Strong desire and commitment to goals
• Be ready to give up some non-essential spending to fund investment
• Know what you truly value
• Join savings programs
• Try to save extra during at least one or two months each year
• Use any gifts, inheritances, or unexpected money as investment funds
Establishing Investment Goals
• What will you use the money for?
• How much will you need for your goals?
• How will you obtain the money?
• How long will it take you to obtain the money?
• How much risk are you willing to assume in an investment program?
• What possible economic or personal conditions could alter your investment goals?
• Given your economic circumstances, are your investment goals reasonable?
• Are you willing to make the sacrifices necessary to meet your investment goals?
• What will the consequences be if you don’t reach your investment goals?
Time Value of Money
Deposits along with investment earnings accumulate
Rate of return makes a huge difference
Small sums grow if invested early
Asset Allocation and Investment Alternatives
Investment Pyramid
Level 1 - Financial Security
Level 2 - Safety and Income
Level 3 - Growth
Level 4 - Speculation
Investment options:
Stock or equity financing
Corporate and government bonds
Mutual funds
Real estate
Speculative investment ( antiques, commodities and derivatives )
Asset Allocation
Time Factor
Age
Types of Investment
Residential Homes and Real Properties
Investment in
:
Residential House
Flats
Standard lots in shopping or office complex
Condominium
Managing A Residential Property
Maintenance of the property
Responding to tenant complaints
Improvement of the property
Obtaining appropriate insurance for the property
Definition
:
Property investment is where investor make a small investment into a property, then go on to rent it out to cover mortgage repayments
Factors to Consider in Property Investment
Price
Location
Developer
Physical condition
Infrastructure
Sources of fundings
Fixed Deposit
Conventional & Islamic Fixed Depositt
Can be Opened by:
Individual age 18 years and above
Joint individual
Societies
Companies
Associations and clubs
Deposit for fixed time, higher return than savings
A financial tool from banks where you deposit money for a fixed time
Can be withdrawn upon maturity
Bond
Prices move opposite to interest rates
Types of Bond
Malaysian government securities (MGS)
Government Investment Issues (GII)
Private debt securities (PDS)
Convertible Bonds
Secured Bonds
Fixed income security, pay interest and repay principal at maturity
Characteristics of Bond
Par value
Coupon rate
Maturity period
Claims on asset
Voting right and fixed income
Definition
:
Units of corporate debt issued by
companies and securitized as tradable assets
Shares
Exchange Traded Funds (ETFs)
Track index, commodity or basket of assets
Trade like stocks, liquid and diversified
Reasons to Invest
Wide choices
Easy to monitor
Low cost
Maximize return
Ownership in company
Generate separate income stream
Capital gains & dividends
Unit Trust
Types of Unit Trust
Equity funds
Fixed income funds
Islamic funds
Property trust funds
Benefits of Investing in Unit Trust Fund
Diversification of risks
Service of professional fund managers
Liquidity
Low capital requirement
Hedge against inflation
Parties Involved in Unit Trust
Unit-holder
Investment management company
Trustee
Unit Trust Charges
Front-end Fee
Switching Fee
Annual Management Fee
Redemption Fee
Definition
:
Managed investments
Allow fund manager pools money from numerous investors
Investment in Savings Account
Types of Saving Account
Individual saving account
Joint saving account
Saving account for associations, societies and clubs
Safe, insured and earns low interest
Advantages
Good money management
Great during emergencies
Day-to-day convenience
Safety in guaranteed
Earn interest every month
Accounts maintained by retail financial institutions that pay interest but cannot be used directly as money
Disadvantages
Low returns
Maintain minimum balance
Not all savings account accompanied by a debit card
Gold
Safe during crises
Investment in Gold
Gold has long been revered as a symbol of wealth
and a reliable store of value
Helps diversify portfolio
Limited supply + high demand = value preservation
Role in Investment
Monitor value investment
Keep accurate and current records
Get advice from financial planner
Consider tax implications
Evaluate potential investments
Sources if Investment Information
Business periodicals and government publications
Corporate Reports
Newspapers and news programs
Investor services and newsletters
Internet
Factors Affecting Choice of Investments
Types of Risks
Business failure risk - bad management or product affect stocks, corporate bonds and mutual funds that has invest
Market risk - prices fluctuate because of behaviors investors
Interest rate risk - invest a bond at 6%, rates later go up to 8%, bond price falls
Global investment risk - changes in currency affect the return in investment
Inflation risk - during periods of high inflation investment return may not keep pace with the inflation rate
Risk-Return Trade-Off
Higher risk = higher return
Higher return = smaller return
An investor faces between risk
and return while considering investment decisions
Safety and Risk
Safety in any investment means minimal risk of loss
Risk means a measure of uncertainty about the outcome
Investments range from very safe to very risky
The potential return on any investment should be directly
Safe = lower return
Risky = higher potential return
Investment Income
Safest investments
Savings accounts and certificates of deposit
Savings bonds
Government treasury bills
Higher potential income investment
Corporate bonds
Preferred stocks and income common stocks
Income mutual funds
Real estate rental property
Investment Growth
Common stock
Mutual funds, government, real estate and corporate bond
Gemstones and collectibles
Growth means investment will increase
Investment Liquidity
How quickly can sell without losing value
Personal Plan for Investing
Evaluate & narrow down investment choices
Choose at least two types of investments
Decide how much money you need & have
Review and adjust plan regularly
Set realistic goals