Financial
Management
Investment
Planning
Prayer Before Class
Lord, we offer to You our class today.
We pray that through Your Divine Guidance,
we would learn how to listen attentively to the inputs of our
teacher.
May we appreciate his effort in imparting his knowledge to us.
May we participate actively in the discussions and activities, so
we could learn more while having fun.
May we value each other’s contributions as a building block
towards harmony and peace.
Prayer Before Class
Grant that as we interact with one another, we recognize the fact
that all our learning activities should be accomplished for Your
greater glory.
Grant that we recognize YOU in each of our classmates and
teachers.
As we learn at home, we pray that You keep us safe from harm and
illnesses.
And we would be able to apply correctly what we have learned
from school.
All these we ask in Your powerful name.
Amen.
Learning Goals
Discuss the role investing plays in financial planning process and identify
several different investment objectives.
Distinguish between primary and secondary markets as well as
between broker and dealer markets.
Explain the process of buying and selling securities and recognize different
types of orders.
Develop an appreciation of how various forms of investment information
can lead to better investing skills and returns.
Gain a basic understanding of the growing impact of the computer and
Internet on the field of investments.
Describe an investment portfolio and how you’d go about developing,
monitoring, and managing a portfolio of securities.
The Objectives & Rewards
Of Investing
Investing Speculating
• usually long-term • usually short-term
• expect future value • future value and
and return to return highly
increase over time uncertain
Adequate insurance coverage and
cash/savings are investment prerequisites
How Do I Get Started?
Regularly allocate a portion of earnings for investing
Take advantage of automatic investment and
dividend reinvestment programs
Learn about investments and "play" trading
Determine financial objectives
PAY YOURSELF FIRST!
What Are Your Investment Objectives?
• Current Income • Retirement
– appropriate for – live comfortably in
retired persons "golden years"
• Major Expenditures • Shelter from Taxes
– college education, – preserve more of
your earnings
down payment on a
home, or starting a
business
Coming Up With the Capital
How much money will it
take?
Do you have a lump
sum to invest now, or
will you systematically Investment plan
save toward your
goal? provides direction
to help attain goal
Different Ways to Invest
1. Common Stock
2. Bonds
3. Preferreds and
Convertibles
4. Mutual Funds,
Exchange Traded
Funds, and Exchange
Traded Notes
5. Real Estate
Different Ways to Invest
1. Common Stock
Represents a share of
ownership in a corporation
Greater potential returns
with a
higher level of risk
Different Ways to Invest
2. Bonds
Represent debt – IOU’s of the issuer
Provide interest income
Bond values inversely related to
changes in interest rates
Different Ways to Invest
3. Preferred securities Convertible securities
• Equity security that behaves
• Special type of fixed
income security
like debt
• Allows conversion into
• Fixed dividend paid before common stock
dividend to common • Provides income and
stockholders possible price
appreciation
Hybrid Securities
Different Ways to Invest
4. Mutual Funds Exchange Traded Funds (ETFs)
– Professionally – Designed to track a basket
managed portfolio by
an investment or index of equity
company securities
– Returns and risk
depend on portfolio
Exchange Traded Notes (ETNs)
– Senior, unsecured, unsubordinated debt securities.
– ETNs face market risk and the risk of the issuing bank
defaulting.
Different Ways to Invest
5. Real Estate
Investments in real estate can range from raw
land speculation to limited-partnerships in
commercial property.
Returns can arise from rents, capital gains, and
certain tax benefits.
Investors must be aware of economic cycles
(Financial Crisis of 2007-2009)
Securities Markets
“Arenas” where financial instruments trade
Capital Market - long-term securities
with maturities >1 year
Money Market - low-risk, short-term
securities with maturities < 1 year
Securities Markets
Primary market Secondary market
new issues available trading previously
for first time issued securities
• Investment bank • Securities exchanges
underwrites • NASDAQ
• Issuing company • OTC Market
gets proceeds
• Prospectus
Broker and Dealer Markets
Broker Market Dealer Market
• buyer and seller come • buyer and seller never
together, direct trade meet
takes place between • buy/sell orders are
them executed separately
• Party A sells securities through securities
directly to Party B dealers acting as
market makers
Broker and Dealer Markets
Dealer Markets
Bid Price Ask Price
price at which price at which
investor can sell a investor can buy a
security security
Foreign Securities Markets
Organized securities Manila
exchanges exist in over
100 countries
Found in
industrialized nations
and emerging Tokyo
economies around
the globe
Regulating the Securities Markets
Federal and state laws regulate securities
sales
Provides for adequate and accurate
disclosure of financial information
Securities and Exchange Commission (SEC)
administers federal securities laws
Regulating the Securities Markets
Securities Act of 1933 – ensure full disclosure
Securities Exchange Act of 1934 – created SEC
Investment Company Act of 1940 – protect mutual
fund shares
Sarbanes-Oxley Act of 2002 – eliminate corporate
fraud
Dodd-Frank Wall Street Reform and Consumer
protection Act of 2010
Bull Market or Bear?
Bull Market Bear Market
• Rising securities • Falling securities
prices for extended prices for extended
time period time period
– Investor optimism – Investor pessimism
– Favorable economy – Economic downturn
Making Transactions in the
Securities Markets
Stockbrokers buy and sell securities
for customers
Selecting a Broker
Full-service, Discount, or Online
brokers
Brokerage fees
Investor protection
Historical Performance of US Stock
Markets Measured by NYSE Returns
Types of Brokers
Odd or RoundRound
Lots Lot
100
Odd Lot shares
fewer than of
100 shares stock or
Odd-lot differential multiples
thereof
Investor Protection
Securities Investor Protection Corp. (SIPC)
protects customers against financial failure of
brokerage firm
insures accounts up to $500,000
guarantees securities or cash held by broker
does not guarantee dollar value of securities
Arbitration settles disputes between broker and
client
Executing Trades
Investor establishes
account with broker
Trades can be executed
by phone, at brokerage
firm, or online
Market orders often take less than two minutes!
Types of Orders
Market order - trade now at best
available price
Limit order - trade when a specified
price or better is reached
Stop-loss order - sell if stock drops to
certain price, use to limit losses
Becoming an Informed Investor
Annual Stockholders’ Reports
The Financial Press
Market, Industry, & Company Data
Dow Jones Industrial Avg
Stock Quotes
Brokerage Reports
NYSE, NASDAQ, Standard & Poor’s
and Other Market Indexes
Advisory Services
Annual Report
Here’s what to read….
Highlights or selected financial data
sections
CEO’s letter
Operations in management’s
discussion and analysis section
Financial statements and notes
Auditor’s report
Online Investing
Online services
Educational material
Investment tools
Investment planning
Investment Research and
screening
Portfolio tracking
Managing Your Investment Holdings
Build a diversified portfolio
based on goals and personal
situation
Allocate assets according to
objectives
Track investments, rebalance
portfolio as
needed
Investor Objectives
Trade-off between
high current capital
income
appreciation
Asset Allocation and Portfolio
Management
Dividing a portfolio among
different types of securities
Total return is influenced
more by asset allocation
than by specific
security selections
Financial Planning Exercise
Suppose that Sairon Reyes places an order to buy 100
shares of SM Investments Corp. (SM) from an online
broker. Explain how the order will be processed.
Reference
Gitman, Lawrence J., Joehnk, Michael D. and
Billingstey, Randall. (2014). Investment
Management with Personal Finance, 2014-
2016 Edition. Singapore: Cengage Learning
Asia Pte Ltd.
