Investing - Term 2 - Year 9 Commerce

Define an ivestment:

An investment is when money is spent in order to gain a profitable return

About how many years is a short-term goal?

1-3 years

About how many years is a medium-term goal?

4-6 years

About how many years is a long-term goal?

Over 7 years

What are the two main ways you can finance your investment?

Through personal savings or by borrowing

What is the advantage of saving before you invest

You do not have to pay interest on a loan

What does a fixed interest rate do?

Remains the same for the period of the loan

What does a variable interest rate do?

Moves up or down depending on the financial market

What is a cash management account?

A cash management account is similar to a normal statement savings account in that funds can be withdrawn and deposited whenever you like

What is the difference between a cash management account and a normal statement savings account?

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

Internet accounts:

Can be accessed through the internet and offer higher rates of interest, few statements and lower fees

Term deposit:

Is a sum of money deposited with a financial institution that must be left there for a set period of time

What does buying shares mean?

Buying shares means buying a certain number of units of ownership in a company

What does owning shares allow you to do?

Owning shares allows you to benefit from the company’s profits, which can be given to you as dividends or as extra shares. You may also benefit from capital growth if the value of your shares increases

What does ASX stand for?

ASX stands for Australian Securities Exchange

What does a stockbroker do and have direct access to?

A stockbroker has direct access to the market for trading shares and, for a small fee and acts an agent who buys and sells shares for others

Advantages of purchasing your own property:

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

Advantages of owning your own investment property:

Income from the rent, the probability of it increasing in value (appreciating) and taxation benefits

What is a managed fund made up of?

A managed fund is made up of a pool of money that comes from many people who have similar investment goals

What is superannuation?

A superannuation fund is a compulsory savings account where each time you are paid over a certain amount, you employer will allocate a percentage of your income to the account

What is a debenture?

A debenture is a long-term loan issued by a company to raise money

What does the debenture state?

The debenture states the amount lent, the interest the company will pay and the period, or length of time, of the investment

What are unsecured notes?

Unsecured notes are similar to debentures except that they are not secured against the businesses’ assets and therefore present a greater risk to the investors in the note (the lender)

What are cryptocurrencies?

Cryptocurrencies are digital based finances, traded mostly within the virtual world

An ethical investment is:

A companies or organisations whose products, policies, and practices are in line with their own beliefs

What are the two most common ways of investing ethically?

Negative screening and positive screening

What does negative screening involve?

Avoiding investing in some types of firms, for example, cigarette companies or firms that make alcohol

What does positive screening involve?

Investing in those firms that are involved in activities which are deemed as desirable, such as renewable energy or healthcare

What is the rate of return?

The profit you receive on your investment as a percentage of the original investment

What is the rate of return formula?

Rate of return = Profit from the investment  x  _________100_____________

                               Original investment            period (years) of the investment

List the two main qualities of growth assets:

• Generally provide a higher rate of return over longer periods

• Are volatile

List the two main qualities of defensive assets:

• Generally provide a lower return but are lower risk

• Their value does not change dramatically in the short term

Give two examples of growth assets:

Property and shares

Give two examples of income or defensive assets

Government bonds and term deposits

What does diversification mean?

Diversification means spreading your money across different investment types in order to spread the risk

What is one of the golden rules of investing?

No one should invest money they cannot afford to lose. Investments should be funded from money that is surplus - never from money that is daily expenses

Who are short-term investments typically chosen by?

Short-term investments are typically chosen by people who want ready access to their funds

The longer the period of investment…

The higher the rate of return

The three main records that shareholders need to keep are:

• The contract note

• The CHESS holding statement

• Dividend statements

Buying shares and then selling them is subject to…

Capital gains tax

Why do investments need to be monitored?

So they can be bought and sold at appropriate times

What does the investment tracker compare?

Value of shares

What are some personal circumstances that may mean investments need to change

Illness, change in family situations, losing your job

What are some economic circumstances that may mean investments need to change

• Changes in the global market

• Finances of nations around the world may change frequently

What is investment risk mitigation?

Investment risk mitigation is the process of developing strategies to reduce threats to your overall financial position

Financial institutions help individuals in many areas, these include:

• identifying short, medium and long-term goals

• developing strategies to achieve your financial goals

• developing an investment plan

• choosing tax-effective investments

• making the most of your superannuation

• finding out if you’re eligible for any government assistance

• working out your insurance needs

• planning for your retirement

• considering your estate planning needs.

A financial adviser must be licensed by…

ASIC or be an authorise representative of an organisation licensed by ASIC

Responsible lenders obligations include

• making reasonable inquiries about the consumer’s financial situation

• taking reasonable steps to verify the consumer’s financial situation

• making an assessment about whether the credit contract is suitable based on the information in the first two obligations

What is ASIC’s role?

To enforce and regulate company and financial services laws to protect Australian consumers, investors and creditors

When did investment opportunities slowly change in Australia?

Investment opportunities slowly changed in Australia when the federal government started the process of deregulation in 1973, which saw the removal of some of the strict rules regarding how banks operated in Australia

What is a credit union?

A credit union is a financial institution that is owned and operated entirely by its members

What is a building society?

Building societies are built by their members and historically supported their members in purchasing homes. In more recent times, building societies have expanded to offering similar services to banks

What are assets?

Items of value

What are blue chip shares?

Very safe and secure shares

What is capital gains tax?

A tax on the profits arising from the increased value of assets such as shares or property

What is capital growth?

Value of an assets increases over time

What is the economy?

The economy is all activities undertaken for the purpose of production, distribution and consumption of goods and services in a region or country

What is ethical?

It is acceptable to society’s current standards

What is a mortgage?

A loan from a financial institution such as a bank where something is held as security in case the loan is not repaid