Investment Management Flashcards
What is investment planning ?
The evaluation and selection of appropriate investment assets
A person can invest in the following investment types :
- financial investments
- money market investments
- bonds
- shares
- collective investments
- non-financial investments
- Real estate
- Collectibles
- Alternative assets
Money markets investments and bonds are examples of investments for ______
Income
Collectibles are examples of investments for _______
Growth
Investments in shares and property is examples of investment in _______
Income and Growth
What are nominal rates of return on investments ??
The actual returns earned on an investment before adjusting for inflation
What are real returns ?
Investments returns that have been adjusted for inflation
What is meant by risk ?
The degree of uncertainty or variability in year-to-year returns on an investment
How would you know if a investment is a Ponzi scheme?
- Returns not paid from profits earned, but from money deposited by subsequent investors
- requires an increasing flow of funds from new investors to keep the scheme going
- promising clients high returns for little or no risks
What is meant by diversification ?
A portfolio strategy designed to reduce risk by combining a variety of investments
What are the limits to diversification ?
- market risk
- benefits of diversification become smaller as you add more assets
- the costs of diversification
Name and explain the different portfolio revision strategies
- the active revision strategy : involves frequent changes in an existing portfolio
- the passive revision strategy : involves rare changes in portfolio
Name some considerations when it comes to investment
- have realistic goals and needs
- have cash reserves
- avoid mental accounting
- Do not speculate
- consider inflation
What are some examples of financial markets ?
- Money markets
- Capital markets
- Foreign exchange markets
- Derivatives markets
What are primary markets ?
Financial markets where new shares and bonds are sold by companies to investors for the first time
What are secondary markets
Enable owners of shares and bonds to sell their securities to other investors
What are the advantages and disadvantages of ordinary shares s
A:
- they out-perform bonds and MM instruments over the long term
- easy to buy and sell
- information is easily available
- hundreds of companies to choose from
D:
- Risk is higher
- dividends are not guaranteed
- could loose original investment
What are ordinary shares ?
Shares represents an ownership interest in the company
What are bonds ?
Financial securities issued by companies, governments or municipalities when they want to raise debt finance/capital.
What is the stock market index ?
A measure of stock market performance
What are some of the disadvantages of unit trusts ?
- they attract significant management and administration fees
- fund managers do not always have the skills necessary to outperform the market and generate superior returns
