WEEK 1: INVESTMENT AND

3. PORTFOLIO MANAGEMENT
PORTFOLIO MANAGEMENT
 Definition: The art of selecting the
right investment policy to minimize
1. CONCEPTS OF INVESTMENT risk while maximizing returns.
 Key Focus: Managing bonds,
 Investment Definition: An asset or
shares, cash, mutual funds, etc., for
item acquired to generate income
maximum profits within a given
or appreciation.
time frame.
 Primary Goal: To create wealth
 Approach: Managed under the
over time rather than for
guidance of expert portfolio
immediate consumption.
managers to meet individual
 Types:
financial goals.
- Capital appreciation: An increase
in the value of an asset over time. 4. PHILIPPINE FINANCIAL SYSTEM
- Income generation: Regular OVERVIEW
returns, like interest, dividends, or
rental income.  Key Components:

2. OBJECTIVES OF INVESTMENT - Banking Institutions: Includes commercial,

thrift, rural, and government banks.
 Capital Preservation: Keeping - Non-bank Financial Institutions: Offshore
hard-earned money safe from banking units, investment houses, insurance
erosion (e.g., through fixed companies, and other intermediaries.
deposits, government bonds, - Regulatory Framework: Overseen by the
savings accounts). Bangko Sentral ng Pilipinas and Securities
 Capital Growth: Long-term goal of and Exchange Commission to ensure proper
turning initial investments into money utilization.
significant wealth (e.g., real estate, - Purpose: The system supports the
mutual funds, equity). mobilization of domestic savings and their
 Income Generation: Creating a conversion into productive investments.
steady secondary or primary
income (e.g., fixed deposits, 5. ELEMENTS OF THE FINANCIAL SYSTEM
dividend stocks).
 Financial Institutions: Provide
 Tax Benefits: Reducing taxable
financial services such as loans,
income by investing in instruments
mortgages, and deposits.
like ULIPs, PPF, and ELSS.
 Financial Markets: Platforms for
 Retirement Savings: Building a
the exchange of money, including
fund that supports you financially
stock, bond, forex, and derivatives
post-retirement.
markets.
 Meeting Financial Goals:
 Financial Instruments: Assets like
Investments tailored to achieve
cash, bonds, property, and other
both short-term (e.g., emergency
valuables.
fund) and long-term financial goals
 Financial Services: Banking,
(e.g., house purchase).
insurance, loans, mortgages,
pensions, etc.
  Financial Practices: Guidelines that  Profit: Investors earn profits
govern how financial institutions through appreciation (buying low
operate. and selling high) or dividends.
 Financial Transactions: Actual  Risk: Stocks are volatile, and prices
exchanges, such as paying for can fluctuate significantly. There’s
goods or services or obtaining always the possibility of losing
loans. money if the value of the stocks
drops.
6. MAJOR FINANCIAL INSTITUTIONS IN THE
 Example Companies:
PHILIPPINES
- AboitizPower Corporation: A leader in
 Commercial Banks: Accept
the Philippine power sector.
deposits and give loans for
- Ayala Corporation: The oldest and
consumption and investment.
largest conglomerate in the Philippines.
 Rural Banks: Provide financial
- Globe Telecom Inc.: A major telecom
resources to rural sectors like
provider in the Philippines.
agriculture.
- Meralco: The Manila Electric Company,
 Thrift Banks: Also known as savings
a major electric power distribution firm in
and loan associations, focus on
the Philippines.
smaller, community-driven needs.
 Government Banks: Institutions 2. BONDS
formed by the government to serve
 Definition: A bond is a loan made
specific financial needs.
by an investor to a borrower,
 Offshore Banks: Banks located
usually a corporation or
outside the depositor’s home
government. The borrower agrees
country, often in low-tax
to pay back the principal with
jurisdictions.
interest over time.
 Insurance Companies: Provide
 Types of Bonds:
financial protection from potential
future risks. - Corporate Bonds: Issued by companies.
 Non-bank Financial Institutions: - Municipal Bonds: Issued by local
Provide services like insurance and governments.
venture capital, typically not - Treasury Bonds: Issued by the US
offered by traditional banks. Treasury.

 Risk and Return: Bonds are

considered less risky than stocks,
WEEK 2: TYPES OF but they also offer lower returns.
INVESTMENTS
3. MUTUAL FUNDS

1. STOCKS (EQUITIES)  Definition: A mutual fund is a pool

of money collected from many
 Definition: Stocks represent investors to invest in various
ownership in a publicly traded securities like stocks, bonds, and
company. Buying stocks gives the other assets.
investor a stake in the company’s  Management Types:
assets and earnings.
 - Active Management: Managed by a less volatility than stocks. However,
fund manager who selects securities based real estate market risks like
on performance expectations. property value fluctuations and
- Passive Management (Index Fund): economic downturns can affect
Tracks a major index, such as the S&P 500, returns.
without active intervention by a manager.

 Risk and Return: Mutual funds can 6. FIXED DEPOSITS (FDS)

be low or high risk, depending on
 Definition: Fixed deposits involve
the assets in the fund and whether
investing a lump sum for a
it’s actively or passively managed.
specified period in a bank. Interest
4. CERTIFICATES OF DEPOSIT (CDS) is earned at a fixed rate throughout
the term.
 Definition: A certificate of deposit
 Benefits: Fixed deposits are one of
is a low-risk investment where
the safest investment options,
money is locked in with a bank for
offering stable and predictable
a set period. The investor receives
returns. They are also useful for
the principal with interest after the
tax-saving purposes.
period ends.
 Risk: Virtually no risk, as returns
 Benefits: They are insured by the
are guaranteed, and capital is not
Philippine Deposit Insurance
exposed to market fluctuations.
Corporation (PDIC) up to P500,000,
making them a safe investment. 7. UNIT INVESTMENT TRUST FUNDS (UITFS)
 Interest: The longer the deposit
 Definition: UITFs are open-ended
term, the higher the interest rate
pooled trust funds, available in
earned.
pesos or foreign currencies. Money
5. REAL ESTATE INVESTMENT TRUSTS from multiple investors is
(REITS) combined into a single fund.
 Management: Managed by a trust
 Definition: REITs are companies
entity with defined rules,
that own, operate, or finance
objectives, and processes.
income-generating real estate.
 Investment Duration: Typically
They allow individuals to invest in
considered medium to long-term,
large-scale real estate without
though some UITFs may offer
actually owning properties
short-term investments.
themselves.
 Risk: UITFs carry some risk, as they
 Structure: REITs typically own
are market-based investments, but
commercial real estate like offices,
they can provide higher returns
shopping malls, apartments, hotels,
over time.
and warehouses.
 Profit: Investors earn through
dividends generated by the GOLD AND PRECIOUS METALS
income-producing properties, as
 Definition: Gold is a popular
REITs are required to pay out a
investment for diversifying risk.
large percentage of their income as
Investors use it to hedge against
dividends.
volatility in other markets.
 Risk and Return: REITs provide
relatively stable returns, often with
  Market Characteristics: The gold - Example: PHP 1,000 to be received in 2
market is speculative and subject years, with a 6% discount rate, is worth PHP
to high volatility, similar to other 890 today.
investment markets.
3. FUTURE VALUE (FV)
 Use: Gold is often invested through
futures contracts or derivatives and  Definition: Future Value is the
can act as a store of value during value of a sum of money at a
economic instability. specific point in the future, given a
particular interest rate. It is the
amount that current cash flows will
WEEK 3: TIME VALUE OF grow into.
 Role in TVM: FV is essential for
MONEY (TVM) calculating how much an
investment made today will be
1. TIME VALUE OF MONEY (TVM)
worth in the future.
 Definition: TVM is the concept that  Formula:
money available today is worth FV=PV X (1 + r)^n
more than the same amount in the
4. DISCOUNT RATE (R)
future due to its earning potential.
This principle applies because  Definition: The discount rate
money today can be invested and represents the rate of return or
generate returns, whereas money interest rate that could be earned
received in the future cannot be on an investment. It reflects the
immediately used for investments. time value of money by showing
 Importance: TVM is essential in how much future cash flows are
financial decisions like investment worth in today's terms.
planning, retirement planning, and  Importance:
mortgage payments, as it affects
how we value cash flows over time. - Opportunity Cost: Represents the
return you would forego by choosing one
2. PRESENT VALUE (PV) investment over another.
- Risk Factor: Higher-risk investments
 Definition: Present Value is the
have higher discount rates to account for
current worth of a future sum of
uncertainty.
money or stream of cash flows,
- Economic Indicators: Interest rates and
discounted at a specific interest
inflation affect the choice of discount rate.
rate.
Higher inflation or interest rates lead to
 Formula:
higher discount rates to compensate for the
PV = FV/(1 + r)^n decreased purchasing power of money in
the future.
- PV: Present Value (the value of the
future amount in today’s terms) 5. FACTORS INFLUENCING DISCOUNT RATE
- FV: Future Value (the amount of money
 Interest Rates: The prevailing
expected in the future)
interest rates in the economy (e.g.,
- r: Discount rate (interest rate, expressed
central bank rates) impact the
as a decimal)
discount rate.
- n: Number of periods (time between
 Inflation: Higher expected inflation
the present and the future)
leads to a higher discount rate to
 adjust for the reduced purchasing sell, abandoning long-term
power of future money. strategies.
 Risk Premium: Riskier investments  Greed: Greed can lead to risky
warrant higher discount rates to investments, with investors chasing
reflect the greater uncertainty. high-reward opportunities without
 Company Policies: Businesses fully considering the risks.
often have standard discount rates
2. LOSS AVERSION
for evaluating investment
opportunities based on their cost Loss aversion is the psychological tendency
of capital. to feel the pain of losses more intensely
than the pleasure of gains. It leads to:
6. PRESENT VALUE CALCULATION EXAMPLE
 Holding on to losing investments
 Example 1: Calculating PV with a
for too long in the hope of a
discount rate of 6% for PHP 1,000
rebound.
to be received in 2 years:
 Selling winning investments
PV = 1000/(1 + 0.06)^2 = PHP 890 prematurely to lock in profits.

 Impact of Discount Rates: 3. CONFIRMATION BIAS

- At a 3% discount rate: PHP 942.60 This bias occurs when investors seek
- At a 10% discount rate: PHP 826.45 information that confirms their pre-existing
beliefs while ignoring contradictory
7. WHY TIME VALUE OF MONEY MATTERS
evidence. In the investment world, this bias
 Investment Decisions: Helps in can:
comparing the value of cash flows
 Skew an investor’s perception of
at different times and in making
risks.
decisions on whether to invest
 Prevent them from objectively
today or defer.
evaluating opportunities.
 Retirement Planning: Ensures you
calculate the amount needed today 4. HERD MENTALITY
to reach a future financial goal.
Herd mentality refers to the tendency of
 Loan Payments: Understanding
individuals to follow the crowd rather than
TVM allows for evaluating
making independent, well-researched
mortgage or loan repayment
decisions. This often results in:
schedules by factoring in future
interest.  Impulsive actions based on social
proof.
 Poor investment choices that may
PSYCHOLOGY OF INVESTING not align with personal financial
goals.
1. THE ROLE OF EMOTIONS IN INVESTING
5. AWARENESS AND SELF-CONTROL
Emotions play a significant role in shaping
investment decisions. The two dominant Recognizing the impact of emotions is the
emotions affecting investors are: first step in managing emotional biases. To
do this effectively:
 Fear: During market downturns,
fear often causes investors to panic  Cultivate self-control and discipline.
  Prioritize logical, long-term
decision-making over impulsive,
short-term emotional reactions.

6. EDUCATION AND RESEARCH

Expanding knowledge about investment

strategies, market dynamics, and risk
management helps reduce the influence of
emotions. This includes:

 Conducting thorough research

before making decisions.
 Being well-informed to avoid
emotional sways.

7. SETTING CLEAR GOALS AND

INVESTMENT PLANS

Having a clear set of investment goals and a

defined plan helps focus on long-term
objectives. This prevents getting influenced
by short-term market volatility. An effective
plan should:

 Align investments with specific

objectives and time horizons.

FORMULAS:

 PRESENT VALUE WITH MULTIPLE

PERIOD
- PV=FV / (1 + r)^t
 FUTURE VALUE WITH SINGLE
INTEREST RATE
- FV=PV x (1 + r x t)
 FUTURE VALUE WITH COMPOUND
INTEREST
- FV=PV x (1 + r)^t