FIO Unit 1 N

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Unit 1 What is Investment? By Joey Lai Banking Academy, Vietnam

Transcript of FIO Unit 1 N

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Unit 1 What is Investment?

By Joey LaiBanking Academy, Vietnam

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Content

Understand the term investment

Differentiate types of investments

Types of investors

Different Types of Risks

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Definition

Any asset into which funds can be placed with the expectation that it will generate positive income and/or preserve or increase its value

Investment

An investment is to commit money at risk to purchase a financial instrument or other asset for a higher profitable return.

or

Financial Investment

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A "real" investor does not simply throw his or her money at any random investment

Investing is not gambling

What Investing Is Not

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Spread Betting

Gambling or Investing?

Investors speculate on two possibilities namely the upward or downward movement of an individual share, currency, or commodity, value, or a stock index

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Why bother investing?

• We want more money to increase our personal freedom, sense of security and ability to afford the things we want in life.

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Time Horizon of Investment

These include buying a retirement fund, shares and

bonds.

Short-term Long-term

Time Horizon

These include saving for a car or an overseas vacation. ( Bank savings)

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Investment Vehicles

Investment Vehicles

Buying mutual funds

Buying gold

Buying securities

Buying real estates

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Classification of Financial Investments

• By its time horizon: short-term vs. long-term– Short-term: Invest for a year or less. A shorter

repayment period. ( lower in risk, lower in return, higher in liquidity)

– Long-term: invest for more than a year. A longer repayment period. ( higher in risk, higher in return)

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Classification of Financial Investments

• By its mode of invest: Direct or Indirect– Direct: investor directly owns a claim on a security

or property. (invest in a company’s shares or bonds)

– Indirect: investor owns an interest in a professionally managed collection of securities or properties

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Classification of Financial Investments

• By its types: Securities and/ or Property– Securities: Equity, Debt and/ or Derivatives– Real Property: land, shop-buildings, apartments– Tangible Personal Property: gold, artwork,

antiques, collectibles

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Classification of Financial Investments

• By its nature of return:– Fixed income investment

• Normal bank savings, fixed-term deposits, bonds, preference shares

– Non-fixed income investment• Ordinary shares

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Major Types of Investments• Debt, Equity or Derivative Securities, Mutual

Funds– Debt: investor lends funds in exchange for interest

income and repayment of loan in future (bonds)– Equity: represents ongoing ownership in a

business or property (common stocks)– Derivative Securities: neither debt nor equity;

derive value from an underlying asset (options)– Mutual Funds: operated by an investment

company which raises money from shareholders and invests in a group of assets

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单击图标添加图片

A financial advisor explains to an investor about mutual funds.

Photograph : Joe Readle

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Types of Investors

• Individual Investors– Invest for personal financial goals

(income, retirement, house, education)

• Institutional Investors– Paid to manage other people’s money– Trade large volumes of securities– Include: banks, insurance companies, mutual

funds, pension funds

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Risk in Investment

Every investment opportunity carries some risks.

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Risk in Investment

Risk in Investment

7

4

1

3

5Liquidity Risk

Default Risk

Inflation risk

Political risk Market risk

6Interest rate risk

2 Business risk

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Liquidity of Various InvestmentsLiquidity Some Examples

Very high Cash, gold, silver, savings and current accounts in banks, G-Securities

High Fixed deposits with banks, shares of listed companies that are actively traded, units, mutual fund shares

Medium Fixed deposits with companies enjoying high credit rating, debentures of good companies that are actively traded

Low and very low

Deposits and debentures of loss-making and cash-strapped companies, inactively traded shares, unlisted shares and debentures, real estate

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Savings vs. Investment

money that is supposed to be immediately liquid and safe.

money that is supposed to be generating more money

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Partnership Investment

Started out this way by pooling money from seven family members or extremely close friends.

Warren Buffet

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Upcoming... In next unit

Success skill in managing your investments lies in achieving the right balance between risks and returns. Where risk is high, returns can also be expected to be high

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THANKS!

By Joey LaiBanking Academy, Vietnam