Investments: An Introduction

Four phases of the life-cycle Learning outcomes Introduction Phase 1: newborn to adulthood (0-20) Introduction Read up on the cognitive development stages of offspring Sensorimotor stage (0-2 years)Preoperational stage (2-7 years)Concrete operational stage (7-11 years)Formal operational stage (11-15+ years)Promote a rock-solid emotional backbone Provide sound education inside and outside institutions of learning Programme the child's mind to be an inquiring one Promote an ethos of sound money management Drive home the philosophy that wealth has two legs: monetary and non-monetary Phase 2: adulthood to maturity (20-40) Introduction Choose your career with care Undertake one career and become accomplished at it Undertake lifelong continuing education Choose your life partner with care Nurture your health and family life Underspend Insure your life only Take on debt, but with much thought Do not bow to peer pressure Phase 3: maturity to seniority (40-60)Introduction Nurture and exploit your personal brand Aggressively repay debt Cash out and separate business risk from personal assets Invest assets wisely Finance lifestyle assets with excess funds Phase 4: seniority to exodus (60-80+) Introduction Choose this day carefully and prepare yourself emotionally Continue to invest assets wisely Resist the Indiana Jones temptation to make a comeback Do not lend money to anyone Undertake SKI holidays Other rules which apply throughout or during part of your life-cycle Introduction Do not become dependent on the largesse of your spouse Nurture relationships in business with like-minded people and avoid negatively-focused people Be quietly competitive Be kind to people with humble stations (positions) in life Read up on the undisputed "Out of Africa" theory Pursue happiness Have no regrets upon exodus Undertake a lifelong love affair with macroeconomics and the political environment Life-cycle of happiness The life-cycle and investing The financial system Learning outcomes Introduction Six elements of the financial system Element 1: lenders and borrowers Element 2: financial intermediaries Element 3: financial instruments Introduction The instruments (ultimate investments) of the ultimate borrowers The instruments of the financial intermediaries Summary Element 4: financial markets Primary and secondary markets OTC and exchange-driven markets Debt market Share market Foreign exchange market Spot and derivative markets Element 5: money creation Element 6: price discovery Allied participants in the financial system Investment instruments Learning outcomes Introduction Time value of money Money market instruments Bond market instruments Share market instruments Derivative market instruments: futures and options Real investments Introduction Property Of the real investments, property is the most significant investment for the retail investor (individual)Commodities Other real investments Investment vehicles Introduction Long-term insurers Retirement funds Securities unit trusts Property unit trusts Exchange traded funds Private equity funds Hedge funds Foreign investments Asset classes Investment principles Learning outcomes Introduction Definition and objective of investment Risk-free rate Investment environment Risk and return What are risk and return?Measuring risk and return Relationship between risk and return Risk and return: the record Investment theories and maxims Introduction Efficient market hypothesis Modern portfolio theory Capital asset pricing model Behavioural finance theory Fundamental analysis (aka firm foundation theory) (security valuation)Introduction Valuation of shares Valuation of fixed-interest securities Valuation of futures and options Valuation of income-producing property Valuation of commodities Valuation of other real assets Valuation of participation interests Lessons from the theories and maxims Introduction There is no simple formula to make you wealthy Top-down investing is wise Diversification is critical Base investment decisions on their FVP Never fall in love with an investment Do not be led by technical analysis Be cognizant of behavioural finance (the psychology of the market)Appreciate market liquidity Appreciate the life-cycle consumption theory Appreciate the significance of the risk-free rate Be aware of the principal-agent dilemma Leave investing to the professionals Understand macroeconomics and mean reversion Portfolio management Asset allocation over the life-cycle Introduction Phase 1: 0-20 Phase 2: 20-40 Phase 3: 40-60 Phase 4: 60-80+