Commerce

• Investing


  Spending money in order to gain a profitable return
• Investing


  • Putting money into financial schemes, shares, property, or commercial ventures with the expectation of achieving a profit
  • A process that requires development over time
  • Individuals, businesses and governments want to invest wisely to gain positive returns
  • Wise investments involve having a clear understanding of objectives, risks and returns
  • Investment decisions will reflect choices and the assessments of risk
• What can you invest in?

  • Shares
  • A business
  • Property
  • Bonds
• Why businesses invest


  To increase their profit levels
• Why governments invest


  To ensure they stay internationally competitive
• Why individuals invest


  To achieve some future goal (short term, medium term or long term)
• Risk and return


  • Greater the risk, the greater the return
  • Losing the initial investment money in order to make more money than originally invested
• ASIC


  Australian Securities and Investment Commission that regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments
• Sources to finance an investment

  • Saving
  • Borrowing
• Advantages of saving instead of borrowing

  • No interest on a loan
  • Can prepare you for the future
  • Earns higher interest
  • Is a secure process
• Disadvantages of saving instead of borrowing

  • Takes a long time to save
  • Loss of an opportunity
• Why borrow to invest when you have to pay interest

  • Does not increase risk factor
  • Potential for return may be increased
• Fixed interest rate


  You get the same interest rates each month
• Variable interest rate


  Interest rates vary depending on the performance of the economy
• Where do you get money to invest?

  • Use personal savings to invest
  • Borrow money to invest
  • Record a weekly income and expenditure account and budget for investment
  • Reinvest previous investments through capital gains
  • Superannuation
• Advantages and disadvantages of financing investments

  • Savings: No interest on a loan, can prepare you for the future, earns higher interest, is a secure process
  • Borrowing: Does not increase risk factor, potential for return may be increased
  • Budgeting: Income, capital gains, dividends, tracking your investments
  • Reinvest capital gains: Investors gear or leverage to increase their portfolio, borrowing to purchase
  • Superannuation: Can save needed money for your retirement, pay less tax
• Investment options


  • There is no single investment plan that fits everyone
  • Each investment option differs greatly, ranging from the initial costs and expenses involved at each investment, as well as the differing risks and returns incurred
  • Individuals must think carefully about their goals, timeframes and personality type
• Investment goals


  • How much do I want to invest?
  • What do I want? A nest egg? A car?
• Investment timeframe


  The time over which you intend to invest will determine your investment portfolio - 5 years, 10 years etc
• Risk profile


  How do you feel about risking your money? Does your nervousness regarding risk outweigh your desires for big returns?
• Managed funds


  A registered managed investment team which is a type of trust
• Examples of managed funds

  • Cash
  • Income funds
  • Bond funds
  • Property funds
  • Balanced funds
• Advantages of managed funds

  • Simplicity
  • Reduced risk
  • Positive cash flow
  • Affordable investment options
• Disadvantages of managed funds

  • Cost and fees
  • No guarantee or refund
  • May decline in value
• Property investment


  Real estate property purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both
• Property investment types


  • Residential
  • Commercial
  • Industrial
  • Rural
• Risk and return


  • The greater the risk, the greater the return
  • Risk = The possibility of losing all the money you have invested
  • Return = the profit that you earn from your investment
• Growth assets


  Assets that will provide a higher return over a long period of time, such as property and shares. Prices shift in the short term, so there is more risk involved.
• Income/defensive assets


  Assets that do not change much in the short term and are considered to be low risk "safer" investments.
• Rate of return


  The profit you receive on your investment as a percentage of the original investment. The main aim is usually to maximise the rate of return.
• Interest


  The price of money. Interest is a form of return.
• Time value of money

  Having one dollar today is worth more than having one dollar at some time in the future.
• Inflation


  An important concept in understanding investments. Interest rate is greater than inflation.
• Investment portfolio


  The collection of all the investments an individual has. It is generally wise to invest in as wide a variety of investment products as possible.
• Reasons for a wide investment portfolio


  To ensure that if one investment is not performing well, it's okay.
• Investment fees and charges


  Entry/application fees, exit/termination fees, administration/management fees, switching fees, trustee fees
• Property has a low rate of return
• Ethical investing


  Investing in businesses that are socially and environmentally responsible
• Negative screening


  Avoiding investing in some types of firms, for example, cigarette companies or firms that make alcohol
• Positive screening


  Investing in those firms that are involved in activities which are deemed desirable, such as renewable energy or healthcare