ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER 6: INVESTMENT PLANNING

ROSELIZA HAMID/UITM KELANTAN/2010ROSELIZA HAMID/UITM KELANTAN/2010

CHAPTER 6:CHAPTER 6:

INVESTMENT INVESTMENT PLANNINGPLANNING

ROSELIZA HAMID/UITM KELANTAN/2010

CHAPTER OUTLINECHAPTER OUTLINE

► IntroductionIntroduction►Types of investmentTypes of investment

EquityEquity Debt securityDebt security Unit trustUnit trust Property/real estateProperty/real estate

►Financial planningFinancial planning


INTRODUCTIONINTRODUCTION

►An investment is a commitment of funds to one or more assets that will be held over some future time period, in the hope that it will generate more income.

►The asset could be tangible like real estate properties or non-tangible monetary assets like securities and you would invest in them based on your financial goals and objectives.


INTRODUCTION…. Cont.INTRODUCTION…. Cont.

►The Malaysian capital market offers an array of investment products in the form of shares, loan stocks, bonds, warrants and unit trusts.

►The type of products chosen by an investor to commit his capital depends largely on his financial goals, time frame, and amount of capital available.


TYPES OF INVESTMENTTYPES OF INVESTMENT

Two forms of investments:1. Physical investments comprise real

property plant, machinery and other forms of tangible assets.

2. Financial investments, such as securities are non-tangible monetary assets. Securities are formal documents, which are evidence of financial investments and states the ownership and repayment rights between the parties.


Equity InvestmentEquity Investment

►Gives an ownership interest in the Gives an ownership interest in the corporation issuing the stock. If the corporation issuing the stock. If the corporation does well, your investment corporation does well, your investment should do well. If not, you could lose some should do well. If not, you could lose some (or all) of your money.(or all) of your money.

►The advantages:The advantages: potential for higher returns over time than those potential for higher returns over time than those

offered by most other investmentsoffered by most other investments returns that historically have outpaced inflation. returns that historically have outpaced inflation.


Debt SecurityDebt Security► pay a set income over a set term. At the end pay a set income over a set term. At the end

of the term, the amount you have invested of the term, the amount you have invested is returned to you. is returned to you.

► Fixed-income investments offer a steady Fixed-income investments offer a steady income stream and historically less volatile income stream and historically less volatile price fluctuations than stock investments.. price fluctuations than stock investments..

► bond prices move up and down, largely in bond prices move up and down, largely in reaction to interest-rate swings.reaction to interest-rate swings.

► Investors in individual bonds who don't plan Investors in individual bonds who don't plan on holding them until maturity, face the on holding them until maturity, face the possible risk of losing principal.possible risk of losing principal.


Money MarketMoney Market► Like fixed-income investments, money market Like fixed-income investments, money market

investments pay a defined income over a set investments pay a defined income over a set term. (The income may be fixed or variable.)term. (The income may be fixed or variable.)

► The advantage: many of them are backed by The advantage: many of them are backed by the Malaysian government, so return of your the Malaysian government, so return of your principal is practically guaranteed. This makes principal is practically guaranteed. This makes money market investments an attractive money market investments an attractive choice for investors with short-term goals.choice for investors with short-term goals.

► The major disadvantage : the investments The major disadvantage : the investments historically have not produced returns much historically have not produced returns much greater than the inflation rate.greater than the inflation rate.


Unit TrustUnit Trust► A professionally managed investment fund which A professionally managed investment fund which

pools your money with that of many other pools your money with that of many other investors with similar investment objectives.investors with similar investment objectives.

► The aggregate sum is then used by the fund to The aggregate sum is then used by the fund to build a diversified investment portfolio which build a diversified investment portfolio which comprises stocks, bonds and other assets in comprises stocks, bonds and other assets in accordance with the investment objective of the accordance with the investment objective of the fund.fund.

► 3 parties involved:3 parties involved: Unit holderUnit holder Management companyManagement company TrusteeTrustee


Unit Trust…. Cont. Unit Trust…. Cont. ► Types:Types:

Equity: Income, growth, aggressive growthEquity: Income, growth, aggressive growth Fixed Income fundsFixed Income funds Islamic fundsIslamic funds Property trust fundsProperty trust funds

► Benefits:Benefits: DiversificationDiversification Professional fund managementProfessional fund management LiquidityLiquidity Hassle freeHassle free AffordabilityAffordability


Investment-Link FundInvestment-Link Fund► A professionally managed investment fund, normally by A professionally managed investment fund, normally by

an insurance company, which pools your money with that an insurance company, which pools your money with that of many other investors with similar investment of many other investors with similar investment objectives.objectives.

► The aggregate sum is then used by the fund to build a The aggregate sum is then used by the fund to build a diversified investment portfolio which comprises stocks, diversified investment portfolio which comprises stocks, bonds and other assets in accordance with the bonds and other assets in accordance with the investment objective.investment objective.

► Helps in your investment planning by giving you a choice Helps in your investment planning by giving you a choice of placing your money in a diversified investment options. of placing your money in a diversified investment options.

► Provides investors with an opportunity to attain medium Provides investors with an opportunity to attain medium to long term capital growth by investing primarily in to long term capital growth by investing primarily in equities.equities.


BenefitsBenefits► Opportunity to participate in the growth of Opportunity to participate in the growth of

dynamic economy through a professional dynamic economy through a professional investment team. The investment fund will investment team. The investment fund will endeavor to provide above-average returns endeavor to provide above-average returns in the long term.in the long term.

► Diversification of investment portfolio Diversification of investment portfolio ► Different Investment Funds Options Different Investment Funds Options ► Professional expertise Professional expertise ► Liquidity Liquidity ► Ease of transactions Ease of transactions ► FlexibilityFlexibility


Real Estate/PropertyReal Estate/Property► Investments in shop houses, standard Investments in shop houses, standard

lots, condo, flats or residential home.lots, condo, flats or residential home.►Benefits/Advantages:Benefits/Advantages:

Less volatile compared to equitiesLess volatile compared to equities Asian like physical asset due to less Asian like physical asset due to less

developed investment marketdeveloped investment market Govt. bonds are not readily available to Govt. bonds are not readily available to

small investorssmall investors Opportunities for growthOpportunities for growth Perceived intrinsic values of propertiesPerceived intrinsic values of properties


Issues to considerIssues to consider

►To decide how much to be investedTo decide how much to be invested►To look for the locationTo look for the location►Who is the developer? The track Who is the developer? The track

record?record?►To look for infrastructureTo look for infrastructure►To evaluate the sources of financingTo evaluate the sources of financing►To evaluate the cycle/timing of entry To evaluate the cycle/timing of entry

and exit.and exit.


Factors to determines Factors to determines returnreturn

►Population growthPopulation growth►Scarcity of landScarcity of land► Income growthIncome growth►Economic activities Economic activities ►Supply & demandSupply & demand►SpeculationSpeculation►RiskRisk

Physical & obsolescencePhysical & obsolescence


REITsREITs►Real Estate Investment Trust is a trust Real Estate Investment Trust is a trust

fund that holds/ invests in RENTAL fund that holds/ invests in RENTAL properties. properties.

►major incomes is rental income and it major incomes is rental income and it is required to distribute most of its is required to distribute most of its profit as dividend to its holdersprofit as dividend to its holders

►2 unique features:2 unique features:1.1. its primary business is managing groups its primary business is managing groups

of income-producing propertiesof income-producing properties

2.2. It must distribute most of its profits as It must distribute most of its profits as dividends.dividends.


FINANCIAL PLANNING

►Assess your financial situation►Diversify your investments►Your Risk Profile►Rational thinking►Monitor your investments►Do's and don'ts of investing wisely►Be mindful of some trading rules


Assessing Financial Situation

► Before embarking on any investment plan, you need to assess your financial situation, and decide how much you can put aside for investments, in addition to your cash savings.

► Some questions you could think about might include the following: What is your current income? How much savings do you have? How much can you save each month? What do you need to save for? What are your liquid assets such as savings in cash or

shares? What are your fixed assets, such as properties? What loans have you taken out and how much are the

interest charges you are paying or principal you are repaying?


Diversifying Investments

► Diversify your investments across different asset classes and across different types of investment products as well as different sectors.

► By diversifying, you will reduce the risk of capital loss and achieve better and more consistent returns over a longer period of time.

► Avoid over-diversification as it can also result in marginally diminishing returns. It will also be difficult to monitor your investments if they are too widely spread.


Risk Profile

►The amount of risk you should take depends very much on your station in life, your net worth, your present earnings, your earning potential and the financial demands made upon you.

Lifecycle Strategies


Risk Profile… Cont.

Investor Profile

Typical Investments

Highly conservative

Government securities, bank backed securities, trustee securities

Conservative A broader range of income-only investments, debentures, corporate bonds, certain insurance products

Middle range Ungeared property, growth shares, investment linked trusts (with growth emphasis), international investments

Entrepreneurial Geared property, growth shares, investment linked trusts (with growth emphasis), international investments

Speculative Options trading, futures, exotics, collectables


Rational Thinking

►It takes discipline to overpower human emotions with rational thinking and you must bear in mind that in any investment, there will always be short-term aberrations.

►Avoid acting on rumors.►Check carefully all information received

and act only on rational thinking and reasoning.


Monitoring Investments► Changing laws and regulations, movements in the

economic environment, the effects of domestic and international markets require constant reviewing of your investments to ensure that existing investing strategies are still relevant to your financial goals and objectives.

► How often you should review and evaluate the performance of your investments depends on the size and time frame of your investments. It also depends on your investment strategies and on whether you have chosen high-risk or low-risk investments.

► Evaluating Performance (Profitability, Earnings growth, Profit contribution by segments, Dividends, Gearing)

► Total Income, Income Return and Capital Growth► Monitoring Unit Trusts


Do's and Don'tsDon't buy investments offered through unsolicited telephone calls or let sales people pressurise you into buying investments. Ask for information in writing before you decide.Don't invest in anything you don't understand. Seek professional advice.Don't assume that the person giving you advice is impartialDon't make the cheque payable to the adviserDon't invest until you have read the prospectus and all other information regarding the investment.Do be skeptical of promises of quick profits or unusually high returns. High returns usually mean high risk.Do consider your attitude to risk. Different investment carry different degrees of risk. Can you hold should your investment fall in the short-term?


Do's and Don'ts

► Do consider what you are trying to achieve. Are you trying to keep pace with inflation or aiming for quick growth? How long can you afford to have your money tied up in the investment.

► Do look at the charges. Are they reasonable? Are they comparable to what others are charging?

► Do remember that past investment performance is no guarantee of future returns.

► Do remember that investing with borrowed money could carry higher risks

► Do request for receipts and keep all paperwork and correspondence about your investments in a safe place.

► Do keep an eye on your investments.


Be mindful of trading rules

►Buying and Selling Shares►Opening a CDS account►Buying a share►Selling a share►Buying on Margin

ROSELIZA HAMID/UITM KELANTAN/2010ROSELIZA HAMID/UITM KELANTAN/2010

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ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER 6: INVESTMENT PLANNING