Dollar’s and Sense

Passive income

Money earned on a regular basis with little or no effort required to maintain it. Some things that produce passive income are real estate, intellectual property like books or internet content, or a business in which the owner is not actively involved.

A share is

A part of a company that people can buy or sell.

Where do you buy shares ?

From a stock exchange

Stock exchange

A place where shares in a company or business enterprise are bought and sold.

What do you need to consider when buying a share ?

Dividend

Dividends are the percentage of a company's earnings that is paid to its shareholders as their share of the profits.

When a company does well and makes a profit, the company is able to reinvest the profit into the business and pay a proportion of the profit as a dividend to shareholders.

Capital Growth

Share capital growth refers to the increase in the value of a company's shares over time, representing a profit for investors who buy shares and sell them for a higher price than their purchase price.

Question on shares

Returns from shares questions:

Hanna has bought 50 shares in a company that pays out two times a year. They pay $2.80 per share. How much will Hanna have at the end of the year?

Kevin has 60 shares in a company that pays out three times a year. They pay $4.90 per share. How much will Kevin have at the end of the year?

Sukuna has 120 shares in a company that pays out every three months. They pay out $0.40 per share. How much will Sukuna have at the end of the year?

Matthew has 205 shares in a company that pays out once a year. They pay $4.30 per share. How much will Matthew have at the end of the year?

Share market : Introduction

Some businesses become so large they choose to become listed companies with many part owners or shareholders.

BHP for example has over 500,000 shareholders.

A share is a unit of ownership in a company. A publicly listed company means the shares in that company are available for purchase on a market such as the Australian Securities Exchange (ASX).

They are called listed companies because the original form of trading shares in companies involved the names of the companies being "listed" on large boards.

Shares in publicly listed companies are sometimes known as equities, stocks or securities.

On a typical day, there would be very few Australians who do not buy or use the goods and services produced by one or more of the 2,000+ companies listed on ASX.

Share markets

Different countries around the world have share exchanges (or stock exchanges, in American).

The ASX, which is short for "Australian Securities Exchange", is where people buy and sell shares in Australian companies.

You may have heard references to the ASX 200. This is a way to get an idea about how the ASX is performing overall, by looking at movements in the share prices of the 200 biggest companies on the ASX.

An index is a simpler way of trying to measure a market's performance than having to calculate every single company's shares in that market.

How to buy shares

The two main ways to buy and sell shares are:

Using a stock broker

The broker (a person or team) does the trading for you.

Using an online broker

You open an online trading account and make your own investment decisions.

Using a stock broker

Advantages

- Brokers can advise you on what to buy or sell.

- They are usually part of a larger team or company, who can have up to date information and research on companies.

- May be easier for someone starting out in share investing

cons

- You will have to pay fees, usually calculated as a percentage of the value of a trade.

- Fees are usually higher (sometimes significantly so) than other forms of share trading

Using an online broker

Advantages

- Because you do it yourself, fees are lower.

- You pay a fee each time you buy or sell shares — starting at around $10.

This can be a flat fee, and not a percentage, meaning it is cheaper when trading larger amounts.

Disadvantages

- You will have to make your own decisions on what to buy and sell.

- You may be required to transfer money between your share trading account and your usual bank account.

Managing Risk

> What is risk’s relation to investing?

> Explain investments and risk

Investing in any kind of asset, whether it is shares, real estate, or high interest bank accounts, comes with an element of risk.

Often the potential returns are linked to the level of risk.

Riskier investments can have greater returns, but they also have increased chances of making a loss.

"Safer" investments usually don't offer high potential returns, but they also have reduced chances of making a loss.

Managing Risk: Diversification

> What is it?

> Explain why it’s important.

> Examples

Diversification refers to investing in a variety of assets, either through a varied portfolio or index funds, which are diversified in themselves.

• When you spread your money across different types of investments, it helps protect you if one investment loses value.

• Investing in many companies instead of just one means that if one company does badly, it won't affect all your money.

• Having a variety of investments helps balance out the ups and downs in the market, making your overall investment more steady.

This way, you reduce the chance of losing a lot of money all at once and keep your savings safer over time.

Different investments like shares, property, and savings don't usually go up or down at the same time, so some can do well while others don't.

Diversification: Index Funds

> What is an ETF?

> What is an index? What is an index fund?

> Example

A great way to have a diversified portfolio is through buying an index fund, sometimes also referred to as an ETF (exchange traded fund).

Discuss: What is an index? What are some of the main indexes we learnt about?

Buying an index fund means you own a small piece of all the companies in that index. For example:

• Buying an ASX 200 index fund means you own shares in the biggest 200 companies in the Australian share market.

Managing Risk: Longevity

> What is the relation to investing?

> Why is this important ? What is it?

Share markets and share prices fluctuate in the short term, and the market can crash.

It's hard to know when the 'right' time to invest is, or what might happen in the near future. Therefore, 'timing' an investment is tricky... but investing for a long 'time in the market' tends to reduce risk and improve returns.

Superannuation in Australia

> When was it started?

> What is superannuation?

Since 1992 the Australian Government has made it compulsory for employers to pay a percentage of their employees' earnings into a superannuation (super) account on their behalf.

Super is savings for your retirement. After money is placed into a super fund, the fund manager invests it to help the balance to grow over time. When you retire, you can access the money to live on.

Superannuation in Australia - What's the point?

The more money you save in super, the more you will have to live on when you retire. Compulsory super is a method of creating 'forced savings' for all Australian workers. The aim of super is that Australians will not need to rely exclusively on the Age Pension in retirement.

Superannuation

> Explain how it works.

If you're eligible, your employer pays money into your super account each time you're paid.

This money is invested (e.g. shares, property, bonds, cash) to grow over time.

You can usually access your super when you reach preservation age and retire, or at age 65.

Early access is only allowed in limited situations.

Most workers must have a government-approved super fund.

You can add extra money yourself to increase your super (called a personal contribution).

What qualifications do you need for a super?

If you're under 18, you must work over 30 hours a week to be eligible.

Super fund

> What is it?

> Why is it important?

Your super fund invests your money for you.

When you're comparing super funds, you'll have to weigh up fund performance, the fees you'll pay, and the mix of assets they invest in.

Most funds let you choose from a range of investment options, from conservative to growth.

Superannuation is one of the largest investments you will ever have. The options you choose can make a big difference to how your super grows.

Growth Funds

Invests mostly in higher-risk assets like shares and property. Targets stronger, long-term returns but can rise and fall more.

Balanced Fund

Balanced: invests in a mix of both growth and defensive assets, aiming for steady returns.

Conservative Fund

Conservative: invests more in lower-risk assets like bonds and cash, offering more stability but smaller gains.

Superannuation: Gender Pay Gap

> What are the reasons for this pay gap?

• example

> Explain the gap

Events such as separation, unpaid caregiving for family members and family violence, as well as the gender pay gap, affected super balances, worsening women's economic insecurity.

This could potentially result in up to $95,000 less in super for women, the report read.

In the years approaching retirement age, the gender superannuation gap can be anywhere between 22 percent and 35 percent. The median superannuation balance for men aged 60-64 years is $204,107 whereas for women in the same age group it is $146,900, a gap of 28 percent. For the pre-retirement years of 55-59, the gender gap is 33 percent and in the peak earning years of 45-49 the gender gap is 35 percent.

Superannuation: Gender Pay Gap consequences

> What are the consequences?

The gender gap in Australia's superannuation is significant and has a wide range of major consequences. These consequences affect everyone in our society and include:

Inadequate lifestyles: More older women end up poor or homeless because they haven't been able to save enough for retirement.

Government pressure: More pressure on the government and taxpayers because many women don't have enough super and need help from government payments when they retire.

Reduced economic growth: The economy suffers because people with less money in retirement spend less, which affects businesses and jobs.

Unfairness: Women often earn less and take time off work to care for others, so the system needs to change to be fairer for everyone.

Insurance

> What is it?

> What should I keep in mind?

An agreement where a company provides compensation for specified loss, damage, illness, or death in return for payment of a specified premium. This is called a transfer of risk because the insurer is taking the risk of meeting the cost of the loss.

• The more risky something is (financially) the more the insurance will costs + if something is more likely to go wrong insurance will cost more.

• Without insurance, you take all the risk that you will have to wear the financial loss if things go wrong.

At the end of the day insurance is a management of risk.

Contents insurance

Insurance policy that covers personal possessions in a home or apartment

Replacement value

The full cost of repairing or replacing a damaged or lost item

Indemnity value

Places you in the same financial position as you were immediately before the loss, so the market value or present-day value to what you lost.

E.g you lose an old model of an apple iphone and it gets replaced with a model equivalent to the old one.

General Insurance

A broad category of insurance that provides protection against financial losses associated with YOUR stuff.

This could be events such as car accidents (motor insurance), loss of or damage to a home or its contents (buildings and home contents insurance), problems with a holiday (travel insurance) and vet bills (pet insurance).

Personal risk insurance

It protects you. If something happens to your health, your ability to work, or your life, personal insurance helps you and your family manage the financial impact.

Home insurance

Insurance covering the loss of residential property.

Travel insurance

A product providing coverage for unexpected events such as trip cancellation, medical expenses, travel delays and other losses incurred while travelling.

Car insurance

Insurance that pays for damage if your vehicle is damaged, stolen, or involved in an accident. It also protects you if you cause damage to others.

Liability Insurance

insurance that provides protection from claims arising from injuries or damage to other people or property

Funeral insurance

To pay for the cost of your funeral when you die.

Pet insurance

Covers pet bills for your pet like accident or illness care for pets.

Life insurance

insurance paid to named beneficiaries when the insured person dies or suffers from a terminal illness.

Insurance process

1. Identify what type of insurance you want/need

2. You pay an insurance premium to an insurance company - and get a promise in return that the company will compensate for losses related to events covered by the policy.

3. Making a claim - When something happens that requires insurance to cover it, a claim must be made by the policyholder. This means informing the insurance company what happens, as the company will look into the claim and check for accuracy of information.

4. Paying an excess - When an insurance claim is made you need to pay and excess. This is the amount you will be required to pay when you make a claim on your policy. In other words, it's the amount you agree to contribute towards the cost of a claim, with the insurer covering the remaining amount.

5. Claim settlement

Once a claim has been assessed, the insurance company will decide if they will pay out the claim. If it is approved, this can involve a cash settlement (less than the excess), repair, or a replacement of the insured item. If it is declined then they will pay out nothing. Insurance companies pay claims based on the wording in your policy.