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

ROSELIZA HAMID/UITM KELANTAN/2010 CHAPTER OUTLINE ► Introduction ► Types of investment  Equity  Debt security  Unit trust  Property/real estate ► Financial planning

ROSELIZA HAMID/UITM KELANTAN/2010 INTRODUCTION ► ► 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.

ROSELIZA HAMID/UITM KELANTAN/2010 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.

ROSELIZA HAMID/UITM KELANTAN/2010 TYPES OF INVESTMENT Two forms of investments: Physical investments comprise real property plant, machinery and other forms of tangible assets 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.

ROSELIZA HAMID/UITM KELANTAN/2010 Equity Investment ► Gives an ownership interest in the corporation issuing the stock. If the corporation does well, your investment should do well. If not, you could lose some (or all) of your money. ► The advantages:  potential for higher returns over time than those offered by most other investments  returns that historically have outpaced inflation.

ROSELIZA HAMID/UITM KELANTAN/2010 Debt Security ► pay a set income over a set term. At the end of the term, the amount you have invested is returned to you. ► Fixed-income investments offer a steady income stream and historically less volatile price fluctuations than stock investments.. ► Fixed-income investments offer a steady income stream and historically less volatile price fluctuations than stock investments.. ► bond prices move up and down, largely in reaction to interest-rate swings. ► Investors in individual bonds who don't plan on holding them until maturity, face the possible risk of losing principal.

ROSELIZA HAMID/UITM KELANTAN/2010 Money Market ► Like fixed-income investments, money market investments pay a defined income over a set term. (The income may be fixed or variable.) ► The advantage: many of them are backed by the Malaysian government, so return of your principal is practically guaranteed. This makes money market investments an attractive choice for investors with short-term goals. ► The major disadvantage : the investments historically have not produced returns much greater than the inflation rate.

ROSELIZA HAMID/UITM KELANTAN/2010 Unit Trust ► A professionally managed investment fund which pools your money with that of many other investors with similar investment objectives. ► The aggregate sum is then used by the fund to build a diversified investment portfolio which comprises stocks, bonds and other assets in accordance with the investment objective of the fund. ► 3 parties involved:  Unit holder  Management company  Trustee

ROSELIZA HAMID/UITM KELANTAN/2010 Unit Trust…. Cont. ► Types:  Equity: Income, growth, aggressive growth  Fixed Income funds  Islamic funds  Property trust funds ► Benefits:  Diversification  Professional fund management  Liquidity  Hassle free  Affordability

ROSELIZA HAMID/UITM KELANTAN/2010 Investment-Link Fund ► A professionally managed investment fund, normally by an insurance company, which pools your money with that of many other investors with similar investment objectives. ► The aggregate sum is then used by the fund to build a diversified investment portfolio which comprises stocks, bonds and other assets in accordance with the investment objective. ► Helps in your investment planning by giving you a choice of placing your money in a diversified investment options. ► Provides investors with an opportunity to attain medium to long term capital growth by investing primarily in equities.

ROSELIZA HAMID/UITM KELANTAN/2010 Benefits ► Opportunity to participate in the growth of dynamic economy through a professional investment team. The investment fund will endeavor to provide above-average returns in the long term. ► Diversification of investment portfolio ► Different Investment Funds Options ► Professional expertise ► Liquidity ► Ease of transactions ► Flexibility

ROSELIZA HAMID/UITM KELANTAN/2010 Real Estate/Property ► Investments in shop houses, standard lots, condo, flats or residential home. ► Benefits/Advantages:  Less volatile compared to equities  Asian like physical asset due to less developed investment market  Govt. bonds are not readily available to small investors  Opportunities for growth  Perceived intrinsic values of properties

ROSELIZA HAMID/UITM KELANTAN/2010 Issues to consider ► To decide how much to be invested ► To look for the location ► Who is the developer? The track record? ► To look for infrastructure ► To evaluate the sources of financing ► To evaluate the cycle/timing of entry and exit.

ROSELIZA HAMID/UITM KELANTAN/2010 Factors to determines return ► Population growth ► Scarcity of land ► Income growth ► Economic activities ► Supply & demand ► Speculation ► Risk  Physical & obsolescence

ROSELIZA HAMID/UITM KELANTAN/2010 REITs ► Real Estate Investment Trust is a trust fund that holds/ invests in RENTAL properties. ► major incomes is rental income and it is required to distribute most of its profit as dividend to its holders ► 2 unique features: 1.its primary business is managing groups of income-producing properties 2.It must distribute most of its profits as dividends.

ROSELIZA HAMID/UITM KELANTAN/2010 FINANCIAL PLANNING ► ► Assess your financial situation Assess your financial situation ► ► Diversify your investments Diversify your investments ► ► Your Risk Profile Your Risk Profile ► ► Rational thinking Rational thinking ► ► Monitor your investments Monitor your investments ► ► Do's and don'ts of investing wisely Do's and don'ts of investing wisely ► ► Be mindful of some trading rules Be mindful of some trading rules

ROSELIZA HAMID/UITM KELANTAN/2010 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?

ROSELIZA HAMID/UITM KELANTAN/2010 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.

ROSELIZA HAMID/UITM KELANTAN/2010 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

ROSELIZA HAMID/UITM KELANTAN/2010 Risk Profile… Cont. Investor ProfileTypical Investments Highly conservativeGovernment securities, bank backed securities, trustee securities ConservativeA broader range of income-only investments, debentures, corporate bonds, certain insurance products Middle rangeUngeared property, growth shares, investment linked trusts (with growth emphasis), international investments EntrepreneurialGeared property, growth shares, investment linked trusts (with growth emphasis), international investments SpeculativeOptions trading, futures, exotics, collectables

ROSELIZA HAMID/UITM KELANTAN/2010 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.

ROSELIZA HAMID/UITM KELANTAN/2010 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

ROSELIZA HAMID/UITM KELANTAN/2010 Do's and Don'ts  Don'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 impartial  Don't make the cheque payable to the adviser  Don'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?

ROSELIZA HAMID/UITM KELANTAN/2010 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.

ROSELIZA HAMID/UITM KELANTAN/2010 Be mindful of trading rules ► ► Buying and Selling Shares ► ► Opening a CDS account ► ► Buying a share ► ► Selling a share ► ► Buying on Margin

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