INVESTING- IN

VESTMEN

T

OPTIONS

Year

10 Commerc

e

the range of investment optionsresearch the range of options and identify appropriate options for individuals in different situations

construct an investment plan for an individual

risk and returnassess the relationship between risk and return for a range of investment options

examine expenses arising from particular investment options

SYLLABUS

THE RANGE OF

INVESTMENT O

PTIONS

RANGE OF OPTIONS • Investment accounts•Cash management• Term Deposits,

• Shares• Property• Managed Funds• Superannuation

QUESTIONS TO ASK YOURSELF BEFORE INVESTING

EXAMPLE PLAN OF GOALS & INVESTING

CASH MANAGEMENT• A cash management account is similar to a normal

statement savings account in that funds can be withdrawn and deposited whenever you like.

• The differences are that it will pay a much higher rate of interest and there is usually a substantial minimum amount that must be kept in the account; for example, $5000.

• Internet accounts can be accessed only through the internet. • They offer higher rates of interest, few statements and lower

fees. They tend to make excellent investment accounts, but have limitations as an everyday access account.

TERM DEPOSITS• A term deposit is a sum of money deposited with a financial

institution that must be left there for a set period of time (the term) in order to receive higher rates of interest in return.

• You cannot withdraw or add to the deposit if you wish to retain the higher interest rates.

• Most term deposits give you the choice of when the interest is paid, either monthly or when the term expires (this is called ‘at maturity’).

• Term deposits are for people who wish their money to be very safe and who are also seeking a reasonable level of return

SHARES• A share is a part ownership of a public company. • Shares are bought and sold on the stock

exchange. • The price of a share constantly changes and if

the price rises, you may make a profit if you sell the share.

• A shareholder may also receive a dividend. • This is the part of the firm’s profit that is divided

among shareholders.• To purchase shares you may use a stockbroker,

who specialises in buying and selling shares for a fee, or you may trade online with an internet broker, such as CommSec. • Online trading is cheaper than using a stockbroker,

but stockbrokers do generally offer a greater depth of knowledge and advice.

PROPERTY• This tends to be the largest individual purchase a

person will make.• Purchasing your own property has advantages, such

as no longer having to pay rent, and when your property is sold, any profits from its increase in value are not taxed.

• Apart from owning a home to live in, many people purchase an investment property with the intention of renting it out. This provides advantages including the income from the rent, the probability of the property increasing (appreciating) in value and taxation benefits.

MORTGAGESBanks and other lenders lend a percentage of the value of the property in the form of a Mortgage. This means the property is promised to the Mortgagee

(lender) until the Mortgagor (borrower) is able to pay back the loan.

The property is collateral for the loan. Mortgages may be taken over a relatively long period

of time; often over 25 – 30 years. This can, however, can be paid out earlier.

Loans involve a choice of rates. A Fixed Interest Rate remains the same for the period of the

loan. Fixed loans give you greater control over your finances,

because the repayments remain the same for the fixed period of the loan.

A Variable Interest rate moves up and down depending on the market. With a variable rate, you are at the mercy of the financial

market. During the 1980s, many people had great financial difficulty

when the interest rates on their loans increased to over 18%

MORTGAGES TYPES

MANAGED FUNDS• A managed fund is made up of a pool of

money that comes from many people who have similar investment goals.

• A professional fund manager invests this money in assets such as shares or property.

• A managed fund allows a small investor to be involved in the share market and real estate.

SUPERANNUATION• A superannuation fund is a managed

fund designed specifically to produce benefits when people retire from work.

• Employers pay approximately 9% for each employee to a superannuation fund and employees contribute a small percentage of their income into the fund.

• When employees retire from work, they receive either a pension or a lump sum payment from the superannuation fund.

RISK AND RETURN

RiskThe probability that an actual return on an investment will be lower than the expected return

Factors influencing risk include investor confidence, interest rate uncertainty and unexpected changes in the financial market

ReturnYield generated by an investment, expressed usually as a percentage of the amount invested

In general, the greater the level of risk, the higher the potential return on an investment will be

RISK VS. RETURN

RISKS OF INVESTING

• Expressed usually as a percentage, ROI is a measure of profitability that indicates whether or not a company is using its resources in an efficient manner

RETURN ON INVESTMENT

(A) ACTIVITY Students are to take on the role of a reporter for the financial

review. They are to research and begin writing a news article on the

current global economic situation and the impact that this may have on both long and short-term investments.

Students will have two periods to finish this activity.