Investing
Investing: investing is the process of buying assets that increase in value over time and
provide returns in the form of income payments or capital gains
How: individuals buy an asset at a low price and sell it at a higher price. When the individual
makes a product it is called capital gain
Risk and Reward
Risk: refers to the potential for you to suffer a financial loss. Put simply, the riskier an
investment is, the more likely you could lose your money
Reward: refers to the financial return an investor receives from investing ie capital gains or
dividends
Types of investments
Savings
General savings account: a savings account is an account at a bank that is designed for
consumers to deposit money and earn interest
Term deposit: are a type of savings account that lets you invest funds for a specific term at
a fixed interest rate. Interest is calculated daily and paid at maturity (for terms up to 12
months), or monthly, quarterly, half-yearly or annually (for terms over 12 months)
How to make money?
● Interest: return earned on an investment. Interest is calculated based on the amount
of funds in the account. The greater the sum of the funds in the account, the more
interest is gained
Risk & return
● Low risk and low return
○ Income and defensive asset: the value does not change dramatically in the
short term
Property
Investment property: is real estate that’s brought with the aim of earning financial returns
such as rental yield of capital gains. The main goal of an investment property is usually to
grow wealth and generate a passive income
Types of investment property
● Residential: residential properties are used as homes. ie houses, apartments
● Commercial: commercial properties are used primarily for business purposes ie office
buildings, shopping malls
How to make money?
● Rental
● Capital gains: the increase in the value of a capital asset when it is sold
● Any profits made on investments:
○ Capital gain tax: e tax paid on profits from disposing of assets including
investments, such as property, shares and crypto assets
Risk & return
● Higher risk & higher return
○ Growth asset: the investments are volatile as the prices fluctuate in the short
term as they are higher risk
Shares
Shares: a share represents a unit of ownership in a company
Types of shares:
● Public listed company: purchasing shares from the ASX
● Private listed companies: investing funds in exchange for equity from a company,
usually this is a significant ownership ie >10%
Eg restaurant, cafe, tech company etc
● How to make money from shares:
○ Increase in share prices: in order to make a profit from shares, an individual
needs to sell their shares when the price of a share has increased from the
purchase price
○ Dividends: payments are a portion of company profits paid out to
shareholders, usually twice a year
○ Key takeaways for successful investment: a diversified portfolio ->
mitigates risk
● Any profits made on investments:
○ Capital gain tax: e tax paid on profits from disposing of assets including
investments, such as property, shares and crypto assets
Risk & return
● Higher risk & higher return
❖ Growth asset: the investments are volatile as the prices fluctuate in the short
term as they are higher risk
Debentures & Unsecured Notes
Debenture: a long term loan issued by a company to raise money. Thus the loan is paid
back over a long period of time at a fixed rate of interest. They include the amount lent, the
interest the company will pay and the period of time as well as security that will guarantee
the business investment even of the company defaults
Risk & return
● Low risk and low return
○ Income and defensive asset: the value does not change dramatically in the
short term
Unsecured notes: similar to debentures except they are not secured of business’ assets
and therefore are a higher risk
● Higher risk & higher return
○ Growth asset: the investments are volatile as the prices fluctuate in the short
term as they are higher risk
Cryptocurrency
Cryptocurrency: assets designed to act as a medium of exchange, with transfers enabled
on blockchains. Cryptocurrencies have no intrinsic value and are only worth what people are
willing to pay for them eg BTC, ETC, Litecoin
Higher risk & higher return
● Growth asset: the investments are volatile as the prices fluctuate in the short term as
they are higher risk
Managed funds
A managed fund is a type of investment where your money is pooled together with other
investors. A fund manager then buoys and sells assets, such as cash, shares, bonds and
listed property trusts, on your behalf
Single asset managed funds
These managed funds invest in a single assets class ie shares, property or bonds
Mixed asset or multi-sector managed funds
These funds invest in a range of investments. They’re labelled based on the types of
investments that make up the majority of the fund portfolio
Higher risk & higher return
● Growth asset: the investments are volatile as the prices fluctuate in the short term as
they are higher risk
Long term: Superannuation
Superannuation is a long term investment that grows over time. The more an individual
contributes to their account whilst their work the more they will have saved for retirement.
● An employer pays 11% per year to their employees fund.
● Employees can make additional voluntary super contributions through salary sacrifice
Risk & return
● Low risk and low return
○ Income and defensive asset: the value does not change dramatically in the
short term
Rate of return = Profit from investment X __________100__________
Original investment Period (years) of the investment
Borrowing to invest
When taking out a loan for investment purposes an individual or business must consider
their repayment ability and the type of loan ie. fixed or variable interest
Fixed interest rate: remains the same for the period of the loan
● Greater control of repayment amounts
● Cannot be paid before the set date without incurring a fee
Variable interest rate: fluctuates depending on the market
● Payment amounts are dependent on the current rate
● May be paid earlier due to flailing interest rates and continuing to pay the same
repayments when rates fall
Ethical investments
Ethical investments: investing in companies whose products, policies and practices are in
line with an individual’s beliefs and values eg
● Sustainable business practices
● Pay above the minimum wage in countries where the minimum wage is below the
poverty line
● Do not engage in child labour where child labour is legalised
Screening
● Positive screening: investing in firms that involved in activities which are deemed
desirable ie renewable energy, healthcare
● Negative screening: avoid investing in some types of firms deemed
undesirable/unethical eg cigarette companies
Factors influencing an investment portfolio
● Risk
● Diversification
● Short and long term goals
Short term
- Short-term investments are less than three years
Medium term
- Medium term investments are between 3-7 years
Long term
- Long-term investments are held for over seven years
Generally the longer the period of investment the higher the rate of return
Modifying investments to maximise long-term gains
● Actively managed, otherwise you run the risk of losing money
❖ Changing investments in relation to changed personal circumstances,
changed economic conditions or the performance of the investments
● Note: medium-term investments are those between 3-7 years
It is important to continually monitor and evaluate your investments. Most people do this by
regularly checking their investment records.
The three main records that shareholders need to keep are:
1. The contract note
2. The CHESS holding statement (CHESS is the clearing house electronic subregister
system and it keep records of all transfers of share ownership)
3. Dividend statements
These records are needed to prove ownership of the shares and for taxation purposes.
