INVESTING:

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: 

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

• Developing strategies to meet those goals. 

• Investment planning and tax-effective investments. 

• Maximizing superannuation and accessing government assistance. 

• Retirement planning and estate planning. 

• Assists businesses with financial decision-making. 

Responsibilities of Lenders and Advisers 

• Financial advisers must be licensed by ASIC or authorized by an ASIC-licensed organization. 

• Responsible lending obligations include: 

• Making reasonable inquiries into the consumer’s financial situation. 

• Verifying the consumer’s financial information. 

• Assessing the suitability of credit contracts for consumers based on their financial status. 

• Advisers must be qualified and trustworthy as they manage clients' funds. 

Role of Government Agencies: ASIC and APRA 

• ASIC (Australian Securities and Investment Commission): 

• Regulates financial services and enforces laws to protect consumers, investors, and creditors. 

• Ensures the stability of the financial system and monitors investment practices. 

• Offers resources such as the financial advisers register on the Moneysmart website. 

Financial Institutions 

• Banks: 

• Offer services like savings accounts, loans, mortgages, credit cards, and financial advice. 

• Act as intermediaries between lenders (depositors) and borrowers. 

• Pay depositors lower interest rates and charge borrowers higher interest to make profits. 

• Credit Unions: 

• Member-owned institutions offering services similar to banks (e.g., personal loans, credit cards). 

• Focus on members' financial well-being rather than profit maximization. 

• Building Societies: 

• Historically helped members buy homes; now similar to banks in services. 

• Fewer than 10 building societies remain in Australia due to mergers with banks. 

EMPLOYMENT AND WORK FUTURES 

Work and Wellbeing 

Contribution of Work to Wellbeing: 

• Relationship of work to quality of life: 

• Disposable income: Work provides money that allows individuals to meet basic needs (food, shelter, etc.) and wants (luxuries, entertainment). This surplus income after expenses improves lifestyle quality. 

• Health: Access to healthcare services and healthy living conditions can be secured with an income from work, leading to better physical and mental health outcomes. 

• Household economic wellbeing: Work enables people to manage household expenses, maintain a good standard of living, and meet compulsory costs (bills, groceries, rent). 

• Superannuation accrual: Contributions made during employment help secure financial stability in retirement, ensuring ongoing wellbeing beyond working years. 

• Household management: With income, families can budget, plan for the future, and handle unexpected expenses, promoting overall economic stability. 

• Self-esteem and living standards: 

• Work provides personal satisfaction, opportunities to use skills and talents, and a sense of belonging within society. It also helps improve material living standards (access to goods and services) and non-material standards (like self-worth and mental wellbeing). 

• Redistribution of income through taxation: 

• Taxation: Workers contribute to society by paying taxes, which the government redistributes. 

• Government expenditure: Taxes fund essential services like education, healthcare, infrastructure (roads, public transport), and social welfare programs (aged pensions, unemployment benefits), benefiting both individuals and broader society. 

The Workplace 
 
Types of Employment & Work Arrangements: 

• Full-time: 

• Ongoing employment. 

• 38+ hours per week. 

• Receives full range of entitlements (e.g., paid leave, overtime). 

• Part-time: 

• Ongoing but fewer than 38 hours per week. 

• Entitlements on a pro-rata (proportional) basis. 

• Casual: 

• Employed hourly or 'as needed.' 

• No fixed hours or entitlements. 

• Receives a loading (higher hourly rate) for lack of benefits. 

• Self-employed: 

• Individuals working for themselves. 

• Responsible for generating income and managing own entitlements. 

• Working from Home: 

• Flexible location and hours. 

• Can balance work with family life but may lack motivation and structured routines. 

• Apprenticeships & Traineeships: 

• Combines work and training to gain qualifications. 

• Apprenticeships often involve working with experienced professionals in trade industries. 

• Traineeships offer paid employment while studying in related fields. 

• Voluntary Work: 

• Unpaid but provides personal satisfaction and community contribution. 

Sources of Income: 

• Wages: 

• Payment for services based on hours worked. 

• Salaries: 

• Fixed regular payment, often including benefits (e.g., superannuation, leave). 

• Commission: 

• Payment as a percentage of sales or business generated, often as an incentive. 

• Profit: 

• Income generated by self-employed individuals from business operations (revenue minus expenses). 

• Dividends: 

• Payments to shareholders from company profits. 
   

How nature of work has changed and will likely change in the future: 

1. Statistical Data on Employment Patterns 

• Trend: Shift from primary (agriculture) and secondary (manufacturing) to tertiary sectors (services). 

• Example: Healthcare sector employment increased from 800,000 in 2007 to 1.7 million in 2016. The retail sector, though large, has seen slower growth, showing changing consumer behaviors. 

• Outcome: Fewer jobs in manufacturing, more jobs in services, especially in customer-centric roles requiring multi-skilling. This shift reflects the growing importance of knowledge-based industries. 

2. Emergence of the Sharing Economy 

• Definition: Sharing economy refers to economic activity where individuals share access to goods or services through platforms (e.g., Uber, Airbnb). 

• Impact: Flexible, gig-based work with less job security and benefits compared to traditional jobs. Workers in the sharing economy often have greater autonomy but face inconsistent income and fewer protections. 

• Outcome: This model challenges traditional employment structures and raises questions about the future of labor rights and job stability. 

3. Technology and Globalisation's Impact 

• Advances in Technology: Automation and artificial intelligence (AI) are replacing manual jobs, especially in sectors like manufacturing and logistics. New roles are emerging in tech, requiring skills in programming, data analysis, and cybersecurity. 

• Globalisation: More outsourcing of tasks to other countries and increased competition in the job market. Remote work has become more widespread due to technological advancements, allowing global collaboration. 

• Outcome: Workers need to be adaptable and continuously upskill to operate new tech and stay competitive in a globalized economy. Lifelong learning is becoming a key expectation in many industries. 

4. Future Workplace Changes 

• Skills: Higher education, specialization, and multi-skilling are increasingly essential to remain employable. The need for critical thinking, creativity, and problem-solving is growing as technology handles routine tasks. 

• Work-life Balance: Flexible work arrangements, such as remote work and flex hours, are expected to increase to meet employee needs. Companies are realizing that improving work-life balance can boost productivity and employee retention. 

• Gender Segregation: More equal gender representation across industries is expected, potentially reducing the wage gap. This shift may also elevate the perceived value of traditionally lower-paid, female-dominated industries, like healthcare and education. 

Hard Words Defined 

• Tertiary Sector: The part of the economy that provides services (e.g., retail, healthcare) rather than goods. 

• Automation: The use of technology to perform tasks without human intervention. 

• Outsourcing: The practice of hiring external companies or workers to perform services or produce goods. 

• Gig-based work: Short-term, freelance work, often facilitated by digital platforms (e.g., Uber).