INTRODUCTION TO

INVESTMENT
Objectives:
At the end of his lesson, the learners will be able to:
1. Differentiate types of investments;
2. Make investing decisions; and
3. Compare and contrast the different types of
investments.
INVESTMENT
• Investment is an asset or item acquired with the
goal of generating income or appreciation.
Appreciation refers to an increase in the value of an
asset over time
• Example: An investor purchases equipment now
with the idea that the equipment will provide
income in the future.
TYPES OF INVESTMENTS
A. Public – government, and banks
B. Private – private businesses and stock
PUBLIC INVESTMENTS
1. Government bonds
– loans you give to a government and they pay you
with interest.
– Government issued bonds and sold to investors to
support the government spending.
 Example: Treasury Fixed Rate Retail
Bills: Treasury Treasury
Notes: Bonds:

Minimum ₱100,000 ₱100,000 ₱100,000

investment 1 year and 2 to 23 years 2 to 24 years
Tenor Interest below Issued Payable semi- Payable
Subject to final at discount: annually quarterly
tax 20% final tax Except for tax Except for tax
exempt exempt
 PROS CONS
• Pay a steady interest income • Offer low rates of return
return • Fixed income falls behind with
• Low risk of default (free from rising inflation
credit risk) • Carry risk when market interest
• A liquid market for selling rates increase
• Assessable through mutual
funds
• Guaranteed by National
Government
• Can be redeemed before
maturity at prevailing market
rates
2. Deposits and Accounts
– Deposits into a government-regulated bank that
earns interest such as a certificate of deposits and
government stocks.

Central Bank of the Philippines

is the government agency that regulates the banking
institutions in the Philippines.
– Term deposit is a type of deposit account held at a
financial institution where money is locked up for some set
period.
 PROS CONS
• Offer fixed rate of interest over • Interest rates are lower or
the life of the investment less-attractive than most
• Risk-free, safe investments, fixed-rate investments.
backed up by PDIC (Philippine • Cannot be withdrawn early
Deposit Insurance Corp), who
insure the deposits of all banks
without penalty or losing
up to ₱500,000 all of the interest earned.
• Low minimum deposit amount • Interest rate don’t keep up
• Pay higher rates for larger initial with rising inflation
deposits • Interest rate risk
PRIVATE INVESTMENTS
 1. Stocks
– independently bought and sold or purchased in
mass by a mutual fund. Investor who buys stock is
buying an ownership share of the company.
Investors are paid in profit through dividends.

Two types of Stocks

a. Common Stocks
b. Preferred Stocks
 A. Common Stocks
PROS CONS
• Potential for higher long-term • Dividends, if available, are
return often lower, variable and not
• Voting rights guaranteed
• Stock price and dividend may
experience more volatility.
• More likely to lose investment
if a company goes bankrupt.
 B. Preferred stocks
PROS CONS
• Dividends are typically higher, • Lower long-term growth
fixed and guaranteed potential
• Share price experiences less • No voting rights
volatility
• Holders are more likely to
recover at least part of
investment in case of
bankruptcy.
Classes of stocks on the basis of:
Dividend Fundamentals Risks: Price
payments: : trends:
❖Income ❖Overvalued ❖Blue-chip ❖Cyclical
stocks stocks stocks stocks
❖Growth ❖Undervalued ❖Beta ❖Defensive
stocks stocks stocks stocks
 2. Corporate bonds
–loans give to a company and they pay you with
interest. Issued by a firm and sold to investors.
–The company gets the capital it needs and in return
the investors is paid a preestablished number of
interest payments at either a fixed or variable
interest rate.
–An investor who buys a corporate bond is lending
money to the company. Investors are paid in interest
rather than profit.
a. According to duration:
▪Short-term
– three years or less
▪Medium term
– four year to ten years
▪Long-term
– more than ten years
b. According to risk
▪Investment grade bonds
– lower risk
▪High-yield bonds
– junk bonds. High risk, high interest rate. (subject to
bankruptcy)
c. According to interest payment
▪ Fixed rate
– coupon rate/stated rate
▪Floating rate
– the rate is reset every six months
▪Zero coupon
– withhold interest payment until maturity
▪Convertible
– allows you to convert bonds to shares of stocks.
 PROS CONS
• Tend to be less risky and • Lower risk translates to
less volatile than stocks. lower return, on average
• Wide universe of corporate • Many corporate bonds
issuers and bonds to must be purchased over
choose from. the counter.
• The corporate bond market • Corporate bonds expose
is among the most liquid to investors to both credit
and active in the world. risk as well as interest rate
risk.
3. Futures
• allow traders to lock in a price of the underlying
asset or commodity. These contracts have
expiration dates and set prices that are known
upfront.
• Examples: commodity futures in crude oil, natural
gas, corn, wheat etc.
 PROS CONS
• Investors can use futures • Investors have a risk that they
contracts to speculate on the can lose more than the initial
direction in the price of an margin amount since futures
underlying (derived) asset. us leverage
• Companies can hedge • Investing in a futures contract
(confine) the price of their raw might cause a company that
materials or products they sell hedged to miss out on
to protect them from adverse favorable price movements
price movements. • Margin can be a double-edged
• Require a deposit of only a sword meaning gains are
fraction of the contract amount amplified but so too are losses.
with a broker.
CATEGORY OF INVESTMENT
A. Ownership investment
B. Lending investment
C. Cash equivalents
A. Ownership investment
• Stocks
– gives you a stake in a company and its profit.
• Real estate
– any real estate you buy and then rent out or resell.
• Precious objects
– precious metals, art collectibles, etc. if the
intention is to resell them for a profit.
• Business
– putting money or time toward starting your own
business to earn profit.
B. Lending investment
• Bonds
- buying bonds is lending money to an entity, in
return, an interest is to receive from that entity.
• Certificate of deposits
– a savings account for a set period of time, where
you are lending your money to the bank, in return,
the bank offer a higher interest rate than the normal
savings account based on how long you leave your
money alone.
B. Lending investment
• Savings account
– a typical bank account, where you are lending your
money to the bank, in return, a minimal interest rate is
offered by the bank.
• Retirement plan
– putting your money in an insurance company, in return, a
benefit is to be payable to the member in the form of
pension to maintain your lifestyle even you get old.
C. Cash equivalents
• Investments that are “as good as cash”
– a money market fund. It is like savings account,
where you put your money at the bank and you may
withdraw whenever you want but usually limited to
certain number of withdrawals.
 INVESTMENT VS. INSURANCE
Insurance provides for your
family’s financial needs if you die.
Investments provide for you and
It pays a cash benefit to the
your family after you retire.
policyholder’s family upon the
death of the policyholder

Investment is a type of asset that

Insurance lacks a cash value
you purchase with the intention
component.
of selling at a profit in the future
Mutual Fund
– a company that pools money from many investors
and invests the money in securities.
– The investors buy share in mutual fund.
– A mutual fund is categorized by market cap which
indicates the size of the companies in which the
fund invests, not the size of the mutual fund.
Manage by their own companies.
Market cap
• is calculated by the number of shares outstanding,
multiplied by the current market price of one share.
• Example: a company with one million shares
outstanding, selling at ₱100/share, would carry a
₱100 million market cap.
▪ Small cap funds
-less stable, can generate sharply negative returns in times
of market instability when less-established companies can
go out of business but they are great investment for market
players who can tolerate risk and dare seeking aggressive
growth.
▪ Mid cap funds
– generate less risk, slightly larger and better established.
Great investment vehicle for investors seeking superior
returns without the risk of small caps.
▪ Large cap funds
– great investment tools for market players who have long-
term holding periods and are looking to buy and hold. They
generate steady returns and income for those who want to
assume risk.
UITF – unit investment trust fund
• the same as mutual funds but managed by banks.