L9 INTRODUCTION TO INVESTMENT

• Stocks – When a person buys stocks, s/he becomes an owner of the business. Stocks are sold and

  bought at a stock market. If the company makes money, the stockholder may be paid a share of the

  profit, called dividends. Capital appreciation happens when the current market price of the

  investment of the stock is higher than its purchase price, allowing the investor to earn money. Cash

  dividend payment happens when the business pays out a portion of its earnings to its stockholders.
• Bonds – When a person buys a bond, the individual loans money to an entity and this entity pays the

  individual back over a set period of time. A bond is a security representing the debt of a government

  or a business, promising to pay a fixed interest to the bondholder for a definite period. Bonds are

  prioritized over stocks. Bondholders are guaranteed to get their money back, plus regular interest

  payments called coupons. Bonds that sell above their face value (the borrowed amount) are said to

  be selling at a premium, while those selling below face value are said to be selling at a discount.
• – Bank deposits consist of money placed into banking institutions for safekeeping.

  These deposits are made to deposit accounts such as savings accounts, checking accounts, and

  money market accounts. The account holder has the right to withdraw deposited funds, as outlined

  in the terms and conditions governing the account agreement.
• mutual fund is classified as a corporation and is regulated by Philippine Securities and Exchange

  Commission (SEC). An investor in a mutual fund is buying shares of that mutual fund and is

  considered a stockholder. Therefore, the mutual fund investor is entitled to the same rights as a

  shareholder of ordinary companies. On the other hand, a UITF is a trust fund subject to strict

  regulations by the Bangko Sentral ng Pilipinas (BSP). They
• Equity fund – These managed funds invest mainly in stocks.
• o Bond fund/ Fixed-income fund and income fund – These managed funds invest primarily in

  bonds.
• Balanced fund – These managed funds combine stocks and bonds.
• Money market fund – These managed funds invest primarily in short-term securities

  representing liquid debt and monetary instruments.
• Currencies – Currency is a medium of exchange for goods and services. In short, it's money, in the

  form of paper or coins, usually issued by a government and generally accepted at its face value as a

  method of payment. Currency is the primary medium of exchange in the modern world, having long

  ago replaced bartering as a means of trading goods and services.
• Commodities – A commodity is a basic good used in commerce interchangeable with other goods

  of the same type. Commodities are most often used as inputs in producing other goods or services.

  The quality of a given commodity may differ slightly, but it is essentially uniform across producers.
• Real estate – Those who invest in real estate may be considered more traditional than other investors.

  Real estate investing is a broad category of operating, investing, and financial activities focused on

  making money from tangible property. The general purpose of invested real estate is for income,

  rather than for residence. Real estate investors may use these properties to sell rent or trade them

  when the prices appreciate. There are several benefits to investing in real estate:
• Insurance –A contract, represented by a policy, in which an individual or entity receives financial

  protection or reimbursement against losses from an insurance company. The company pools clients'

  risks to make payments more affordable for the insured. Insurance policies are used to hedge against

  the risk of financial losses, both big and small, that may result from damage to the insured or her

  property or from liability for damage or injury caused to a third party.
• Diversification is a risk management technique that combines various investments within a portfolio

  to reduce risk. A well-diversified portfolio can eliminate non-systematic risk.
• Real estate:

  There are several benefits to investing in real estate:

  o Hedge against inflation

  o Rent income

  o Debt payment

  There are also some disadvantages in real estate investment:

  o Illiquid investments

  o Deflation

  o Lack of diversification

  o Management and operating expenses
• Hedge against inflation – Real estate prices increase over time. Inflation causes prices of

  goods to go up, which means that buyers can purchase less than what they did before. If

  an individual has real estate investments, he or she may be assured that the value of the

  properties will increase over time and can cover the expenses he/she has incurred.
• Rent income – Real estate investments may provide regular rent income or cash flows.
• Debt payment – Real estate are considered tangible properties, which can be sold to pay off

  debts of the investor or debts of the business.
• illiquid investments – Real estate cannot be easily convertible to cash. It may take a long

  time to sell a property, and their cash conversion may limit the investor. While these assets

  are not yet liquidated, the interest on the investor’s debts is increasing.
• Deflation – Deflation occurs when the prices go down instead of up. This would mean that

  a real estate investor will be forced to sell his/her properties for less than he/she initially

  acquired them for.
• Lack of diversification – Real estate investments are expensive, so individuals can only

  invest in one (1) or two (2) properties. This means that the investor loses his opportunity to

  invest in other types of investments or securities that offer better features.
• Management and operating expenses – An investor would usually incur more costs in

  managing real estate than any other investments. The real estate investor would need to

  look for reliable tenants and maintain the property, which is not needed in other investments.