MI top 1

• An investment is essentially an asset that is created with the intention of allowing money to grow
• Investment may generate income for you in 2 ways

  1. Saleable asset
  2. return generating plan
• earning oncome cia accumulation of gains

  return generating plan
• income by way of profit

  saleable asset
• Investments are all about putting your savings into assets or objects that become worth more than their initial worth
• an investment is a sacrifice of current money or other resources for future benefits
• if you buy an asset for less than its real value, you have margin of safety
• The best plan to lower risk is to buy investments at a price lower than the real or intrinsic value
• how you divide your portfolio among different asset categories

  asset allocation
• the biggest determinant of investment returns

  asset allocation
• the marginal benefits of adding addtional investments decreases as the numbers get larger until the costs become greater than the benefits
• short term investments is one of the biggest downfalls of current investing strategies
• most investors don’t realize how much difference high expenses make into their portfolio
• Portfolio volatility is an investment return killer, as it can cause a portfolio to be under-performing relative to its benchmark
• Avoiding large portfolio drawdowns should be one of your preeminentt investing principles
• despise portfolio volatility but embrace market volatility
• you can control portfolio volatility but you cannot control the inevitable volatility of investment markets
• technology and internet have brought down transaction costs and provide the means to get information and guidance at a very low cost
• Different types of investments

  1. Shares/stocks
  2. property
  3. cash
  4. fixed interest
• kinds of stocks or shares

  1. common stocks
  2. preferred stocks
• shares are considered growth investment as they can help grow the value of your original investment over the medium to long term
• the value of shares may also fall below the price you pay for them
• shares are also known as equity
• Shares have delivered higher retuns than other assets thus shares are considered one of the riskiest types of investment
• Entitles owners to vote at shareholder meetings and receive dividends

  Comon stocks
• this kind of stockholder usally dont have voting rights but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated

  Preferred stockholders
• property is also considered as a growth investment because the price of houses and other properties can rise substantially over a medium to long term period
• Cash investments include everyday bank accounts, high interest savings account and term deposits
• They typically carry the lowest potential returns of all the investment types

  Cash investments
• they offer no chance of capital growth, however, they can deliver regular income and play an important role in protectingg wealth and reducing risk in an investment portfolio

  cash investments
• the best knownn type of fixed interest investments are bonds
• Bonds are essential when government/companies borrow money from investors and pay them a rate of interest in return
• also known as defensive investment becaue they generally offer lower potential returns and lower levels of risk than shares or property

  bonds
• risk is the uncertainty associated with the returns from an investment
• risk is the potential for variability in returns
• elements of risks:

  1. systematic risk
  2. unsystematic risk
• the impact of economic, political, and social changes is system-wide and the portion of total variability in security terms by such system-wide factors

  systematic risk
• Interest rate risk is a type of systematic risk that particularly affects debt securities like bonds and debentures.
• interest rate risks is a systematic risk which affects bonds directly and shares indirectly
• market risk is a type of systematic risk that affects shares i.e. the variation in returns caused by the volatility of the stock market