TAGOLOAN Community College MODULE WEEK NO.

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Baluarte, Tagoloan, Misamis Oriental
University Tel.No. (08822)740-835/(088)5671-215
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College of Business Administration

COURSE Code: Investment and Portfolio Management
ND
2 Semester of A.Y. 2021-2022

Introduction

This course is designed to help learners discover in the long run that the highest compounded returns
will most likely accrue to those investors with larger exposure to risky assets. They will likewise realize
that although there are no shortcuts or guarantees to investment success, maintain a reasonable and
disciplined approach to investing will increase the likelihood of investment success over time.
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Rationale

● Financial plans and investment needs are as different as each individual. Investment needs change
over a person’s life cycle. How individuals structure their financial plan should be related to their
age, financial status, future plans, risk aversion characteristics, and needs
● The asset allocation decisions are usually different at the various stages of the investor life cycle. It
is said that we should invest in more equities at an early age. But while age is important for asset
allocation, its importance is relevant only because our conditions and resources change over time.
Individuals at different stages of the investor life cycle can be of the same age, but would still need
to have different asset allocation strategies.

Intended Learning Outcomes

After discussion, students should be able to:

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A. Define asset allocation;

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B. Design theirDiscussion
own rise and fall of personal net worth over a lifetime; and

Provide
C. Develop handouts
their though google
own financial classroom
goals.

Send Youtube link for further discussion and illustration

Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5

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Online instruction

Require students to develop their financial plan using the different life cycle phases

Online Assessment

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Online instruction
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Quescussion
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The Asset Allocation Decision

The previous lessons informed us that risk drives return. Therefore, the practice of investing funds and
managing portfolios should.

This time, we will examine some of the practical implications of risk management in the context of asset
allocation. Asset allocation is the process of deciding how to distribute an investor’s wealth among different
countries and asset classes for investment purposes. An asset class is comprised of securities that have
similar characteristics, attributes, and risk/return relationships. A broad asset class, such as “bonds” can be
divided into smaller asset classes, such as Treasury bonds, corporate bonds, and high-yield bonds.

Before embarking on an investment program, we need to make sure other needs are satisfied. No serious
investment plan should be started until a potential investor has adequate income to cover living expenses
and has a safety net should unexpected occur.

Insurance. Life insurance should be a component of any financial plan. Life insurance protects loved ones
against financial hardship should death occur before our financial goals are met. The death benefit paid by
the insurance company can help pay medical bills and funeral expenses and provide cash that family
members can use to maintain their lifestyle, retire debt, or invest for future needs (for example, children’s
education, spouse retirement. Therefore, one of the primary steps in developing a financial plan is to

Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5
purchase adequate life insurance coverage.

Cash Reserve. Emergencies, job layoffs, and unforeseen expenses happen, and good investment
opportunities emerge. It is important to have a cash reserve to help meet these occasions. In addition to
providing a safety cushion, a cash reserve reduces the likelihood of being forced to sell investment at
inopportune times to cover unexpected expenses. Most experts recommend a cash reserve to about six
months living expenses.

Individual Investor Life Cycle

Individual investor life cycle indicates the investment behavior of investor over the different age of their life.
The investment decision is based on the age, financial condition, future plans and risk characteristics of an
individual.

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Investor mainly invests in getting a return which can compensate the sacrifice of present for more future

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earnings and security. As a financial plan investor can adopt different insurance policies or reserve cash for

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future. Although investor has to take risk of reserving cash or investing the cash they are ready to take some
risk according to their risk-taking behavior.
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An investor passes through four different phases in life

● Accumulation Phase
● Consolidation Phase
● Spending Phase
● Gifting Phase

Accumulation Phase

Investor early or middle to their career tries to accumulate fund so that individual can have money to spend
in the later phase of their life. Some people accumulate the fund to buy house, car or other important assets
and some people accumulate for their children’s education cost, life peaceful life after retirement.
Funds invested in the early phase of life gives an investor a huge amount of fund which is compounding over
the years

Consolidation Phase

Consolidation phase is the midpoint of their career, in this phase, they earn more, spends more and pay off
all their debts. In this phase moderately-high risk taken by the investor but for capital reservation some
investor prefer lower risk investor. Individual invest in the capital market and investment securities.
Spending Phase

This phase starts when an individual retires from the job. Their overall portfolio is to be less risky than the

Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5
consolidation phase; they prefer low risky investment or risk-free investment. People prefer fixed income
securities like a bond, debenture, treasury bills etc. In this phase, they need some risky investor if they have
extra money so that future inflation can be adjusted.
Gifting Phase

If individuals believe that they have enough extra funds to meet their current and future expenses then they
go for gifting money to their friends, family members or establish charitable trusts. These can reduce their
income taxes and they also keep some fun for future uncertainties.
Over the different phase, investor behaves differently and invest in their preferred sector according to their
risk-taking behavior.

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Life Cycle Investment Goals

During an individual’s investment cycle, he or she will have a variety of financial goals.

Near-term, high-priority goals are short-term financial objectives that individuals set to fund purchases that
are personally important to them, such as accumulating funds to make a house down payment, buy a new
car, or take a trip. Parents with teenage children may have a near-term, high priority goal to accumulate
funds to help pay college expenses. Because of the emotional importance of these goals and their short time
horizon, high risk investments are not usually considered suitable for achieving them.

Long-term, high-priority goals typically include some for of financial independence, such as the ability to
retire at a certain age. Because of their long-term nature, higher-risk investments can be used to help meet
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Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5
these objectives.

Lower-priority goals are just that – it might be nice to meet these objectives, but it is not critical. Examples
include the ability to purchase a new car every few years, redecorate the home with expensive furnishings,
or take a long, luxurious vacation. A well-developed policy statement considers these diverse goals over an
investor’s lifetime.

Formula for the Future Value of an Initial Investment

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Formula for the Future Value of Annual Investment
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FV = PV x ULE

Formula for last column

Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5
Initial Investment + Annual Investment

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ULE

Exercise

Direction. Submit your answers through Google Classroom or FB Messenger .

Problem 1. Develop your own table on rise and fall of personal net worth over a lifetime. Use your current
age for accumulation phase and your preferred age for the spending/gifting phase. (20 points)

Problem 2. Complete the table below to determine the value and benefits of investing early. (60 points)

The Future Value of The Future Value The Future Value of

an Initial Php12,000 of Investing the Initial Investment
Investment Php2,000 Annually and Annual
Investment

Noel Q. Formoso
Assistant Professor lV
[email protected]
 MODULE WEEK NO.5
Interest Rate 8%

10 years

15 years

20 years

Interest Rate 10%

10 years

15 years

20 years

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Assessment
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Google Classroom
Reflection
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● In your own understanding, what is the significance of an investment objective?
● Do you agree with this statement, “The more volatile the risky asset, the more
frequent the reallocation”?

Resources and Additional Resources

● Analysis of Investment and Management of Portfolios by Keith C Brown and Frank
K Reilly (Textbook)
● Investment Analysis and Portfolio Management by Japhur (Online Book)

Noel Q. Formoso
Assistant Professor lV
[email protected]