commerce

INVESTING:

Reasons for Investing

Reasons Businesses/Individuals choose to invest:

· Businesses: Invest ---> Achieve profit. Investments can be new machinery, technologies, factories, other firms or their own workforces (programs that help workers’ skills and efficiency).

· Individuals: invest ---> achieve future goal. These goals can be, short term (1-3 years), medium term (4-6 years) or long term (< 7years)

· Examples of goals that leads individuals to look for investments include:

- Desire for extra income and future security - To pay for a major purchase - To fund a holiday or a child’s education - To ensure a comfortable retirement.

- Invest in their own education ---> goals achieved faster through high paying job

Investment Options

Domestic and International Investment Options for People

Investment Accounts:

· Term Deposits: Money is locked for a set term at a fixed interest rate, offering a safe and reliable return. Suitable for people seeking security and low risk.

· Cash Management Accounts: Similar to savings accounts but with higher interest. Accessible anytime, but usually requires a high minimum balance.

· Internet Accounts: High-interest online accounts with low fees but limited access. Ideal for people comfortable with online banking.

Shares:

· Buying shares gives ownership in a company, allowing investors to benefit from company profits (dividends) or capital growth and can be traded on (ASX). They are flexible and liquid, ---> for investors seeking growth but has high market volatility.

Property:

· Offering rental income and potential appreciation. Real estate is considered a solid, long-term investment.

Managed Funds:

· Managed funds collect money from many investors, which is managed by professionals and invested in various assets like shares or property. Allows small investors to access diversified portfolio

Superannuation:

· A compulsory savings account where employers contribute a percentage of an employee’s income. Essential for retirement savings and managed by professional fund managers.

Debentures and Unsecured Notes:

· Debentures: A loan to a company with a fixed interest rate and long-term repayment. It is less risky because the company provides security.

· Unsecured Notes: Similar to debentures but without security, offering higher interest rates due to the increased risk.

Cryptocurrency:

· Digital currencies eg. Bitcoin, which are decentralized and operate without government or bank control. Highly volatile and speculative, making them a high-risk investment suitable for experienced or risk-tolerant investors.

Relationship between Risk and Return for various investments

· Managed Funds: Moderate risk and return, with professional management and diversification across assets to balance risk.

· Property: Higher long-term returns but higher risk due to market fluctuations. Property values can rise significantly, but short-term volatility poses risk.

· Shares: High-risk, high-return investments with significant price fluctuations. Over time, shares can offer substantial gains but are volatile in the short term.

· Superannuation: Lower risk as a long-term investment for retirement. Returns depend on the mix of growth and defensive assets, managed to balance risk.

· Investment Portfolio: A diversified portfolio spreads risk by investing in a mix of assets, such as shares, property, bonds, and term deposits. This strategy helps

reduce the impact of losses in one area while maximizing potential returns across various investments.

Ethical Investments Ethical investments = choosing to invest in companies whose products, policies, and practices align with an investor’s personal values. It is becoming more common, as people are more aware of issues and practices of businesses that can damage our society and the environment.

Some key ethical concerns include:

· type of products a company makes or sells, such as cigarettes, alcohol or gambling machines

· evidence of unsafe working conditions

· company forbidding trade unions

· evidence of exploitation of child labour

· creation of excessive amounts of greenhouse gases

· Actions affecting the Earth’s biodiversity

The financial services industry Financial Services Industry Role The financial services industry provides tools, advice, and guidance for managing financial resources and develops financial systems and provides training to support operations and reporting.

· Offers advice on managing investments for long-term financial gain.

· Ensures accurate transaction processing according to laws and policies.

· Guides individuals and businesses in contingency and continuity planning.

· Assists in identifying, evaluating, and mitigating risks.

· Provides financial reports and statutory remittances.

Financial Advice

· Helps individuals with:

o Setting short, medium, and long-term financial goals.

o Developing strategies to meet those goals.

o Investment planning and tax-effective investments.