Investnent Planing

8/8/2019 Investnent Planing

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Investment planningInvestment planning

y Investment refers to the concept of deferredconsumption, which involves purchasing an asset, givinga loan or keeping funds in a bank account with the aimof generating future returns.

y Focuses on identifying effective investment strategies.

y Through investment planning, one can identify the mostappropriate portfolio mix.



C apital growth versus regular incomeC apital growth versus regular income

y Investors aiming at long-term goals focus on capitalgrowth.

y Stocks, mutual funds and real estate representinvestment options for capital growth.

y On the other hand, short-term goal is to give you aregular flow of funds to complement your presentsalary.

y It is in the form of dividends and interest and includefixed-income investments, such as bonds and certificatesof deposit ( CD s).



R isk R isk y Every investment option represents a unique

risk-return trade-off.

y Higher risk ² Higher return

y Investment planning should take into account an

investor·s risk appetite, which dependents onyour current income level, savings, lifestyle andresponsibilities.



D etermine your investment profileD etermine your investment profiley There are mainly four types of investment profiles:y C onservative ( Low Risk T o lerance ): Such portfolios

comprise mainly (about 70%) of income assets, such as fixedinterest and cash.

y Balanced ( A verage Risk T o lerance ): This refers toportfolios with an equal emphasis on growth and incomeassets.

y G rowth ( H igh Risk T o lerance ): Such portfolios comprisemainly (up to 80%) of growth investments, such as stocks andforeign currencies.

y High G rowth or Aggressive ( V ery H igh Risk T o lerance ):This refers to portfolios with more than 90% of the funds ingrowth investments



B enefits o f Investment PlanningB enefits o f Investment Planning

y G enerate income and/or capital gains.

y

Enhance your future wealth.y Strengthen your investment portfolio.

y Save on taxes



Types o f InvestmentsTypes o f Investmentsy C

ash investments: These include savings bank accounts, certificates of deposit ( CD s) and treasury bills

y These investments pay a low rate of interest and are risky options inperiods of inflation.

y D ebt securities: Provides returns in the form of fixed periodic paymentsand possible capital appreciation at maturity.

y It is a safer and more 'risk-free' investment tool than equities. R eturns arealso generally lower than other securities.

y Stocks: Buying stocks (also called equities) makes you a part-owner of thebusiness and entitles you to a share of the profits generated by thecompany.

y

Stocks are more volatile and riskier than bonds.



C ont«C ont«y

Mutual funds: This is a collection of stocks and bonds and involvespaying a professional manager to select specific securities for you.y Advantage of this investment is that you do not have to bother with

tracking the investment.y There may be bond, stock- or index-based mutual funds.y C ommodities: The items that are traded on the commodities market

are agricultural and industrial commodities.y The trading of commodities is associated with high risk and high

reward. Trading in commodity futures requires specialized knowledgeand in-depth analysis.

y R eal estate: This investment involves a long-term commitment of fundsand gains that are generated through rental or lease income as well ascapital appreciation.

y This includes investments into residential or commercial properties.



Investment ManagementInvestment Management

y The professional management of assets, such as realestate, and securities, such as equities, bond and otherdebt instruments, is called investment management .

y The need for investment management arises due to:a)The existence of a large number of complex financial

productsb) Financial market volatility

c) C hanges in regulatory requirements



W hat d o es it inv o lve? W hat d o es it inv o lve?

y Setting investment objectives.

y

Formulating the investment plan.

y Establishing the portfolio strategy.

y Selecting the assets.



A lternative InvestmentsA lternative Investmentsy Futures: Futures are standardized contracts for the sale and

purchase of a commodity on a specified date and at apredetermined price. Futures can be used to trade currencies andcommodities .

y ETFs: Exchange traded funds (ETFs) hold assets such as stocks,

bonds, commodities and precious metals. These ETFs are traded onthe stock exchange at a price that equals the net asset value (NAV)of the underlying asset.

y Hedged funds: Hedge funds invest in a broad range of investmentoptions, including stocks, debt and commodities. They often aim atoffsetting potential losses in the markets they invest in.

y Art: The popularity of art as an alternative investment rosesignificantly following the financial crisis of 2008 due to a prolongeddownturn in the stock market, a slowdown in the economy andlow interest rates

y .



C ont«C ont«y G old: G old is a defensive investment and becomes more popular

during periods of prolonged economic and political upheavals.

y Wine investment: Investments in fine wine have yielded healthyreturns over the past few years. Wine investments also remainedrelatively insulated from the 2007-2008 credit crunch



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Investnent Planing