Year 9 Commerce Option

Option 1 InvestingFocus: Students learn about the range of investment options and how to make wise investment decisions.

Students learn about:Investinginvestment decisions

financing investmentsavings and borrowings

ethical investments

Investment optionsThe range of investment options

Risk and return

Student learn to:Analyse the reasons why individuals and businesses invest

Identify a range of ways to finance investment

Investigate the issues relating to ethical investments

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

Construct an investment plan for an individual

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

Examine expenses arising from particular investment options

Option 1 Investing - continuedFocus: Students learn about the range of investment options and how to make wise investment decisions.

Students learn about:Investment planningSelecting a mix of investments-spreading the risk

Maintaining records and monitoring investments

Modifying investments to maximise long-term gains

Current issuesKey issues related to investment in current financial environments

Student learn to:Identify the diversity of possible investments

Select an appropriate mix of investments for individuals in different situations

Use a spreadsheet to construct a hypothetical investment plan with an appropriate mix of investments

Construct and maintain an effective procedure to monitor investments

Research information using the internet and other sources, to select appropriate investment options

Select investment options to maximise long-term returns

Modify investment plans in relation to changing personal/economic conditions

Identify, investigate and report on current issues relating to investment

Your task1. You are to brainstorm and prepare a mind map of

all you know about investing2. Write a description of your life when you are age

60 noting occupation (or past occupation), assets, income level and lifestyle. Include how you might have achieved this standard of living. Highlight the importance of investing.

TONIGHT: Interview parents about their investing history – take home the syllabus and show what you will be doing. If you are a boarder you can email or call parents over next week

Investment DecisionsWhat is an

Investment?

Why do businesses and individuals invest?

What is Investment?Money spent to gain a profitable return

Why do businesses and individuals invest?Businesses invest in machinery, factories and their

workers to increase profit levelsIndividuals invest their savings to reach a

particular goal

Who is this person? What kind of investor?

The World's Billionaires#1 Warren Buffett03.05.08, 6:00 PM ET

       Age: 77

Fortune: self made Source: Berkshire Hathaway Net Worth: $62.0 bil       Country Of Citizenship: United States Residence: Omaha, Nebraska , United States, North America Industry: Investments Marital Status: widowed, remarried, 3 children Education: University of Nebraska Lincoln, Bachelor of Arts / Science Columbia University, Master of Science America's most beloved investor is now the world's richest man. Soared past friend and bridge partner Bill Gates as shares of Berkshire Hathaway climbed 25% since the middle of last July. Son of Nebraska politician delivered newspapers as a boy. Filed first tax return at age 13, claiming $35 deduction for bicycle. Studied under value investing guru Benjamin Graham at Columbia. Took over textile firm Berkshire Hathaway 1965. Today holding company invested in insurance (Geico, General Re), jewelry (Borsheim's), utilities (MidAmerican Energy), food (Dairy Queen, See's Candies). Also has noncontrolling stakes in Anheuser-Busch, Coca-Cola, Wells Fargo. Insurance operations flourished in 2007. "That party is over. It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008." The Oracle of Omaha issued a challenge to members of The Forbes 400 in October; said he would donate $1 million to charity if the collective group of richest Americans would admit they pay less taxes, as a percentage of income, than their secretaries. Had long promised to give away his fortune posthumously. Irrevocably earmarked the majority of his Berkshire shares to charity in 2006, mostly to the Bill & Melinda Gates Foundation. Gift was valued at $31 billion on day of announcement; donation will far exceed that sum so long as Berkshire shares continue to rise.

Financing InvestmentFinance comes from 2 main sources:

1. SAVINGS income from your job profits from your investment portfolio

2. BORROWINGS loan from the bank loan from parents/friends/”venture capitalist”

As the syllabus states…identify a range of ways to finance investment: how could you finance a car when you go to uni for example?

Individual investing vs business investmentindividual investing (saving to create wealth,

enhance income, retirement preparation) business investment (productive capacity and

profit generation)

Can you think of examples of both?

SAVING VS BORROWING

Create a list of the pros and cons of both?

WEALTH AND INCOMEAre you able to clearly distinguish between the

concepts of wealth and income? Wealth: Your worth. The value of all your assets.Income: Money you earn as well as interest you earn

on that money or capital gains on any investments.What is the relationship between these two

concepts?

INFLATION: The price of living increases. To control inflation or ‘curb’ inflation the Reserve Bank of Australia will raise the Interest Rate

From SMH “Wealth”Building wealth July 13, 2011 Be the first to comment Question: We are in our early 30's and looking to begin building our wealth. Our home is valued

at around $680,000 with a remaining mortgage of $170,000. Our gross incomes are $75,000 and $110,000 and we have cash in an offset account and a small share portfolio to the value of $120,000. We are interested in investing in blue chip Australian stocks or LICs. Should we use our own funds or borrow? And if borrowing, whose name should the investment be in? Is there an alternative to a margin loan?

Answer: Your goal should be to maximise your deductible interest and minimise your non deductible interest. Accumulating money in the offset account is giving you flexibility so keep doing that, but at the same time take advice about a home equity loan to invest in quality shares. Because the loan would be secured over your home there is little chance of margin calls. If capital gains tax is not a big issue you could also consider selling some of the shares you have and using the proceeds for the offset account or a reduction in your home loan.

Read more: http://www.smh.com.au/money/ask-an-expert/blogs/ask-an-expert/building-wealth-20110711-1ha2f.html#ixzz1SXTljUMc

What is income and what is wealth in the above article?

Celebrity daze: CEOs are not stars of sport or screen, they're just overpaid employees

Read more: http://www.smh.com.au/business/celebrity-daze-ceos-are-not-stars-of-sport-or-screen-theyre-just-overpaid-employees-20100208-nncm.html#ixzz1SXUVeD6c

Miners, property magnates top rich listUpdated May 26, 2010 16:33:00 Photo: Westfield boss Frank Lowy topped the BRW Rich 200 list for the first time.

Map: Australia Shopping centre magnate Frank Lowy has been named the richest person in Australia in 2010, bumping Anthony Pratt, the son of late cardboard king Richard Pratt, off the top spot

http://www.abc.net.au/news/2010-05-26/miners-property-magnates-top-rich-list/842366

What companies would you invest in..personal finance continuationYOUR TASK:Try and come up with 5 companies you think

would be good to invest in and answer the following questions on the companies:

1.What is the company and its core business2.How many employees does the company have3.How long has it been running4.What is the company worthy: market

capitalisation5.Why do you believe this company is a good

investment?

From : The Khan AcademyReturn on capital : Introduction to return on capital and cost of capital. Using these concepts to decide where to invest.

http://www.khanacademy.org/video/return-on-capital?playlist=Finance

NEWS ARTICLE ON investingGo to SMH or The Australian online and find an article

from “Business” or “Money” sections that interests you about some aspect of investing.

- it must relate somehow to part of the “investing” part of the syllabus!

You are to do the following:

1: Summarise the article

2: look up and define any financial terminology mentioned in the article

3:Explain why you chose the article

Include title of article and date and publication and link to the article

Fixed VS variable interest rates

Define what a fixed interest rate is and when is a good time to opt for a fixed rate on a loan?

A fixed interest rate is a set or fixed rate on your loan repayments for a fixed period of time. A good time to opt for a fixed rate is when interest rates are LOW.

What is a variable interest rate and when may this be a better option than a fixed interest rate?

Distinguish between fixed and variable interest rates on borrowed funds

DEBATE

‘Businesses should only consider the law when making decisions’

The majority of businesses want to be seen as responsible corporate citizens.

The triple bottom line refers to the economic, environmental and social performance of a business.

Ethics are standards that define what is acceptable and unacceptable behaviour.

Business ethics is the application of moral standards to business behaviour such as:

– fair and honest business practices– decent workplace relations– conflict of interest situations– accurate financial management– truthful communication.

A corporate code of conduct encourages ethical business behaviour.

Ethical InvestmentsIllegal or unethical…what

is the difference?Why do businesses concern

themselves with ethical issues in investment?

Why might investors want to buy ‘green’ shares?

The Body Shophttp://www.youtube.com/watch?v=temOt9p9I

FY

ENRONFinancial Statements fudged: ABC radio

national.

SOCIAL RESPONSIBILITY• Social responsibility refers to a business’s

management of the social, environmental, political and human consequences of its actions.

• A socially responsible business tries to achieve two goals simultaneously:

– expanding the business– providing for the greater good of societyCan you think of an example?

SOCIAL RESPONSIBILITYSome businesses argue that making a legal profit is

all that is required to act responsibly.Do you agree?

• Today’s society has high expectations of business practices and greater awareness of business’s social responsibility.

Why?• A sustainability report/social audit is a report

that details what a business has done, and is doing, concerning the social issues that affect it.

Ethical dilemma

Why should investors be wary of firms that are involved in unethical practices?

INVESTMENT OPTIONS

What are the investment options available to us?

Investment OptionsInvestment Accounts

Shares

Investment OptionsInvestment Accounts

Banks and other financial intermediaries have these accounts

Egs are cash management accounts and term depositsShares

When you buy a share, you are a part owner of a businessYou will receive an income in the form of a dividend if the

business makes a profit Use a stockbroker who specialises inBuying or selling shares• CommSec online Internet broker

Investment OptionsProperty

Managed Funds

Investment OptionsProperty

Usually involves buying their own home. May involve buying additional property to add to the

wealth of an individual or business

Managed FundsMade up of a pool of money that comes from people with

similar investment goalsA fund manager will invest the funds on their behalfA professional fund manager invests money in assets

such as shares or property

Investment Options Superannuation

Debentures and unsecured notes

Investment OptionsSuperannuation

A managed fund designed to save for retirementEmployer 9% contributionEmployee contributions

Debentures and unsecured notesLending to a businessA debenture is a document issued by a firm when you lend it a

sum of money. The debenture states the amount lent, the interest the firm will pay the period of the investment.

A debenture is relatively safe investment as debenture holders are one of the first to be repaid if a firm is liquidated

Unsecured notes are similar to a debenture except that they are one of the last to pay if the firm is liquidated. They are not as safe and consequently attract a higher rate of interest

ACTIVITYYou are to rank a range of investments on a

grid:Vertical axis low/high risk; horizontal axis

low/high return) based on level of risk and return

Risk and ReturnRisk is related to return

High risk investment may have a high return, or you may lose your money

Low risk investment have a lower return, but you are less likely to lose your money

A Mix of Investments• Spreading your risk is an important concept in investing• Don’t ‘put all of your eggs in one basket’An investment portfolio is a collection of all the investments an

individual has. It is generally wise to invest in as wide a variety of investment products as possible.

Categories of investment1.Growth assets: shares and property. Higher

return over longer period. Volatile – prices fluctuate greatly in the short term so higher risk

2. Income or defensive assets: government bonds and term deposits, which usually provide a lower return but are lower risk – their value does not change dramatically in the short term.

The price of every asset will fluctuate. This is the risk of investing – the higher the rate of return the greater the risk involved.

Risk and returnA key factor in investing your money is the

rate of returnThis is the profit you receive on your

investment as a percentage of the original investment

Rate of return= profit from the investment/original investment x 100/period (years) of the investment

Risk and return e.g.Kate invested $10, 000 in shares. She sold

them one year later and made a profit of $1500. Her rate of return is?

Rate of return= profit from the investment/original investment x 100/period (years) of the investment

Risk and ReturnKate invested $10, 000 in shares. She sold

them one year later and made a profit of $1500. Her rate of return is?

$1500/$10000x 100/1=15%

So Kate’s rate of return was 15% on her investment!

Risk and return

QUESTION:Describe the relationship between rate or return

and risk

INVESTMENT PLANNING Selecting a mix of investmentsspreading the risk

Use a spreadsheet to construct a hypothetical investment plan with an appropriate mix of investments

Writing task

Explain why the balance of an investment portfolio should change with age

Advise me!You are to make recommendations on

investment portfolios for a range of people at different life stages:

1.Young single adult2.Married couple with children3.‘empty nesters’4.Retired pensioners5....6....

Records and MonitoringWhy keep records?

Records and Monitoring

Why keep records?Keeping records when you buy sharesKeeping records when you buy propertyMonitoring…to make sure that your investments

are going to plan

activity

You are to draw a diagram to illustrate flows of money – asset purchases, income returns, fees and charges, taxation, further purchases to enhance portfolio

Margin lending

Margin Lending or gearing, is lending money to invest in shares and managed investment funds

Additional glossary Assets: something of value, e.g. property, house, shares blue chip shares: safe and secure shares Capital Gains Tax :a tax on the profits arising from the increased value of assets such as shares or property Debenture: a document issued by a firm when you lend it a sum of money dividend :part of a firm's profit that is divided among shareholders Ethical: acceptable to society's current standards fixed interest rate: interest rate that remains the same for the period of the loan income and expenditure account :a record of income earned and money spent during the previous week investment :putting money into something in order to make a profit. Individuals, government and business all

carry out investment. investment portfolio: all the investments an individual has managed fund: a pool of money that comes from people who have similar investment goals. It is invested by a

fund manager in assets such as shares or property. rate of return :the profit you receive on your investment as a percentage of the original investment Share: a part ownership of a public company stockbroker :individual or firm that specialises in buying and selling shares superannuation :a way of saving so an employee has some money in retirement superannuation fund: a managed fund designed specifically to produce benefits when you retire unsecured note: similar to a debenture except the holders of these are one of the last to be repaid if a firm is

liquidated variable interest rate: rate that moves up or down depending on market forces