Investment Management

Lesson 4 of 36

Objectives

• Explain investment process• Enumerate and differentiate different

security types

Investment Process

• Investor Constraints:– Resources– Horizon– Risk Tolerance– Liquidity– Taxes– Unique Circumstances (dependents, social,

political horizon, conflict of interests)

Investment Professionals

• Choosing a broker and/or advisor• Online brokers?• Investor protection• Online resources - Bloomberg, PSE,

Technistock

Types of Accounts

• Cash Accounts• Margin Acounts• Retirement Accounts

WHAT ARE THE FORMS OF INVESTMENT?

1.1) real estate properties: land; building; condominiums, etc.

1.2) precious stones and metals: gold, nickel, diamonds, copper; etc.

1.3) jewelry: necklaces, earrings, rings, etc.1.4) works of arts: paintings, sculptures, antiques, etc.1.5) machinery and equipment: tractors, generators, taxis, buses, fishing vessels, etc.1.6) commodities: rice, corn, cooking oil, cement, etc.

1. INVESTMENT IN PHYSICAL ASSETS:

WHAT ARE THE FORMS OF INVESTMENT?

2.1) savings deposits2 .2) time deposits2.3) special savings deposits or premium savings

deposits2.4) trust invest investments: trust fund certificates

having variable yield/interest rates depending on how the trust fund performs

2. INVESTMENT IN FINANCIAL ASSETS:

WHAT ARE THE FORMS OF INVESTMENT?

2.5) treasury bills 2.6) treasury bonds2.7) retail treasury bonds (RTB!) or small

denominated treasury bonds (SDT Bonds!)2.8) private corporate bonds: ALI bonds, PLDT

bonds.2.9) mutual funds: GSIS mutual fund, Philam

fund, Phil Equity Fund

2. INVESTMENT IN FINANCIAL ASSETS:

WHAT ARE THE FORMS OF INVESTMENT?

2.10) commercial papers: STCP’s, MTCP’s, LTCP’s2.11) bonds issues by GOCC’s: HGC bond’s; NPC

bonds2.12) mortage-backed securities or MBS2.13) asset-backed securities ABS2.14) shares of stocks2.15) derivatives

2. INVESTMENT IN FINANCIAL ASSETS:

WHAT IS INVESTMENT RISK?

1.) of not being able to realize the expected RATE OF RETURN on an investment; or

2.) of not being able to recover the ORIGINAL AMOUNT of investment

It is the DEGREE OF UNCERTAINTY

WHAT IS RISK TOLERANCE?

It is the level of risk that an investor

1.) is willing to absorb; or

2.) is comfortable with

CLASSIFICATION OF INVESTMENTS BY NATURE OF RATE OF RETURN:

1.1) savings deposits1.2) time deposits1.3) treasury bills*1.4) treasury bonds*1.5) RTB’s or SDT Bonds*

1.) FIXED INCOME INVESTMENTS OR FIXED-RATE-OF-RETURN INVESTMENTS:

1.6) GOCC Bonds*1.7) Private Corporate

bonds1.8) Commercial papers1.9) MBS1.10) ABS

* N.B.: Those with * are the LEAST RISKY investment instruments.

CLASSIFICATION OF INVESTMENTS BY NATURE OF RATE OF RETURN:

2.1) trust investments2.2) mutual funds2.3) stocks2.4) derivatives

2.) VARIABLE-RATE-OF-RETURN INVESTMENTS:

WHAT IS AN INVESTMENT PORTFOLIO?

It is a set of (or a basket containing) 2 or more forms of investment instruments or financial assets; i,e; a basket containing stocks, bonds, treasury bills, MBS, etc.

or a set or basket of the same form of securities (like stocks or bonds) issued by 2 or more companies.i.e., a basket of stocks of PLDT, SAN MIGUEL CORPORATION, MERALCO, GLOBE, ETC.

WHAT IS INVESTMENT PORTFOLIO DIVERSIFICATION?

• It is the process of selecting the financial assets or investment instruments that compose the investment portfolio.