Stock Trading as an investment
[1] Stock are securities that entitle holders to part of the ownership of limited companies. Examples of stocks are common stocks (CS) and preferred stocks (PS).
- Voting rights: CS-Yes, PS-No.
- Dividends: CS- Yes, if declared. PS- Yes, at a fixed rate.
- Priority: CS- Lower, PS- Higher (in receiving dividends & claims upon liquidation)
[2] Common HK Stocks:
- Blue chips: CS of the largest and best-known non-foreign companies with strong financial positions.
- 2nd liners: CS that are inferior to blue chips in terms of financial strength.
- 3rd liners: CS that are inferior to blue chips & 2nd liners in terms of financial strength.
- Red chips: CS of firms that are listed in HK, incorporated outside the Mainland of China and mainly operated in the Mainland.
- H-shares: CS of firms that are listed in HK but incorporated in the Mainland of China.
[3] Factors affecting stock prices include:
- Macro-economic: Economic conditions (G/P), Interest rates (up/dn), Political situations (Stability).
- Industrial: Good/Poor Prospects.
- Firm-specific: Company performance (Good/Poor), Dividend policy (High/Low payouts).
[4] Stock exchanges are places where stocks are listed and traded. HKEx is the only stock exchange in HK.
[5] Market capitalisation refers to the market value of all the shares issued by a listed company. It can also refer to the total value of all the stocks listed on a stock exchange.
[6] HKEx has two platforms for companies to list their stocks. They are the Main Board (MB) and the Growth Enterprise Market (GEM)
- Listing requirements: MB (stricter), GEM (less strict)
- Target companies: MB (Larger/more mature companies), GEM (smaller/younger companies)
- Investment risk: MB (lower), GEM (Higher)
[7] HSI is the most commonly used stock market index in HK.
- The HSI comprises the largest and most liquid stocks listed on HKEx.
- By indicating general price movements of the HK stock market, the HSI can help investors make their investment decisions. It can also reflect HK's economic performance in advance.
2016年6月18日 星期六
Personal Financial Planning (PFP) and Investments
[1] ROI - the profit earned on an investment; + or -.
- Risks: firm-specific risk (can be diversified) and market risk (cannot be diversified).
[2] Risk/Return relationship.
- Higher the risk > the higher the return.
- However, the higher risks of investments do not necessarily bring higher returns.
[3] Risk/Return trade-offs:
- Bank deposit (lowest), Bond/Debentures (higher), Stocks (highest).
[4] Risk diversification is very important to every investor. Different investment products that are not correlated in their portfolio.
[5] PFP aims to help individuals:
- achieve financial goals in life, avoid financial mistakes, maintain living standards.
[6] Life cycle is an important concept in PFP. Individuals usually have different financial needs, priorities and objectives at different life stages that typically young single, just married, married with young children, married with older children, pre-retirement and retirement.
[7] MPF scheme
Employee Rights:
- Join the employer's MPF scheme. Make voluntary contributions to the sheme. Withdraw the accrued benefits at age 65.
- Employee Responsibilities: Contribute 5% monthly relevant income to the scheme. Bear the investment risk. Choose MPF funds according to their risk tolerance level.
[1] ROI - the profit earned on an investment; + or -.
- Risks: firm-specific risk (can be diversified) and market risk (cannot be diversified).
[2] Risk/Return relationship.
- Higher the risk > the higher the return.
- However, the higher risks of investments do not necessarily bring higher returns.
[3] Risk/Return trade-offs:
- Bank deposit (lowest), Bond/Debentures (higher), Stocks (highest).
[4] Risk diversification is very important to every investor. Different investment products that are not correlated in their portfolio.
[5] PFP aims to help individuals:
- achieve financial goals in life, avoid financial mistakes, maintain living standards.
[6] Life cycle is an important concept in PFP. Individuals usually have different financial needs, priorities and objectives at different life stages that typically young single, just married, married with young children, married with older children, pre-retirement and retirement.
[7] MPF scheme
Employee Rights:
- Join the employer's MPF scheme. Make voluntary contributions to the sheme. Withdraw the accrued benefits at age 65.
- Employee Responsibilities: Contribute 5% monthly relevant income to the scheme. Bear the investment risk. Choose MPF funds according to their risk tolerance level.
Consumer Credit
[1] Consumer credit (CC) refers to non-mortgage personal loans. It is a type of credit extended to individuals for purchasing consumer goods and services.
- CC allows individuals to buy expensive consumer goods without having the money ot pay for them in the bank.
- With some types of CC, consumers do not need to carry a large amount of cash.
[2] The common types of CC in HK including credit cards, overdrafts, lines of credit and installment loans.
[3] Credit Card - upto the pre-approved credit limit.
Advantages: Convenient for making purchases, Safe, Worldwide acceptance, Repayment flexibility.
Disadvantages: High interest rate, Risk of credit card abuse, Rejected by certain shops.
[4] Overdrafts - withdraw more money than they have deposited in their accounts.
Advantages: Prevent a cheque from being dishounoured, Provide short-term liquidity, Repayment flexibility.
Disadvantages: Can be a trap for creating debt if used improperly. High interest rate.
[5] Lines of credit or revolving loans. Allow consumers to borrow and repay money anytime up to a pre-approved amount. Within the pre-set limits, consumers can use as much of the available credit as they like.
Advantages: Convenient for borrowing money, Repayment flexibility, Interest is usually lower than that on credit cards and overdrafts.
Disadvantages: Can be a trap for creating debt if used improperly.
[6] Instalment loans or instalment credit. Loans with a fixed number of payments for repaying both the loan principal and the interest.
[7] Maintaining a good personal credit record is very important. This is because an individual may obtain credit mroe eaily and possibly at lower interest rates if he has a good credit record.
[8] To maintain a good personal credit record, individuals should:
- plan for consumption
- review spending habits regularly
- use CC with discipline
- avoid a sudden increase in credit card applications.
- consider their repayment ability when applying for loans.
- pay all bills on time.
[1] Consumer credit (CC) refers to non-mortgage personal loans. It is a type of credit extended to individuals for purchasing consumer goods and services.
- CC allows individuals to buy expensive consumer goods without having the money ot pay for them in the bank.
- With some types of CC, consumers do not need to carry a large amount of cash.
[2] The common types of CC in HK including credit cards, overdrafts, lines of credit and installment loans.
[3] Credit Card - upto the pre-approved credit limit.
Advantages: Convenient for making purchases, Safe, Worldwide acceptance, Repayment flexibility.
Disadvantages: High interest rate, Risk of credit card abuse, Rejected by certain shops.
[4] Overdrafts - withdraw more money than they have deposited in their accounts.
Advantages: Prevent a cheque from being dishounoured, Provide short-term liquidity, Repayment flexibility.
Disadvantages: Can be a trap for creating debt if used improperly. High interest rate.
[5] Lines of credit or revolving loans. Allow consumers to borrow and repay money anytime up to a pre-approved amount. Within the pre-set limits, consumers can use as much of the available credit as they like.
Advantages: Convenient for borrowing money, Repayment flexibility, Interest is usually lower than that on credit cards and overdrafts.
Disadvantages: Can be a trap for creating debt if used improperly.
[6] Instalment loans or instalment credit. Loans with a fixed number of payments for repaying both the loan principal and the interest.
[7] Maintaining a good personal credit record is very important. This is because an individual may obtain credit mroe eaily and possibly at lower interest rates if he has a good credit record.
[8] To maintain a good personal credit record, individuals should:
- plan for consumption
- review spending habits regularly
- use CC with discipline
- avoid a sudden increase in credit card applications.
- consider their repayment ability when applying for loans.
- pay all bills on time.
2016年6月17日 星期五
Time Value of Money
[1] The time value of money means that a dollar received today is worth more than a dollar received in the future because of the effect of compounding.
- Compounding and discounting are the major concept involved in time value of money calculations.
- Compounding is the process of finding future value while discounting is the process of finding present value.
[2] Future value (FV) is the value at the end of a time period from a sum of money today.
[3] Present value (PV) is the current value of a future sum of money.
FV = PV x (1+i)^n, e.g. i = the annual interest rate, n = the no. of years.
[4] NPV is employed to make investment decisions.
- NPV = PV of future net cash inflows - initial outlay.
- If an investment's NPV >0, a firm or an individual should invest in it.
- If its NPV < 0, one should not invest in it.
- If its NPV = 0, a firm or an individual should invest in it.
E.g. NPV = (PVs of all annual net case inflows from using the machine + PV of the machines's market value in Year 10) - Initial cost of the machine.
[5.1] The difference between nominal & effective rates of return is due to differences in the frequency of compounding.
[5.2] When comparing different investment plans, we should use the effective rate of return (ERR) if the frequency of compounding differs.
ERR = (1-i/m)^m - 1. Nominal annual interest rate of i and the interest is compounded at a rate of m times per year.
E.g. ERR = (1+0.1/4)^4 - 1 = 10.38%. where i = 10% and is compounded 4 time a year.
[1] The time value of money means that a dollar received today is worth more than a dollar received in the future because of the effect of compounding.
- Compounding and discounting are the major concept involved in time value of money calculations.
- Compounding is the process of finding future value while discounting is the process of finding present value.
[2] Future value (FV) is the value at the end of a time period from a sum of money today.
[3] Present value (PV) is the current value of a future sum of money.
FV = PV x (1+i)^n, e.g. i = the annual interest rate, n = the no. of years.
[4] NPV is employed to make investment decisions.
- NPV = PV of future net cash inflows - initial outlay.
- If an investment's NPV >0, a firm or an individual should invest in it.
- If its NPV < 0, one should not invest in it.
- If its NPV = 0, a firm or an individual should invest in it.
E.g. NPV = (PVs of all annual net case inflows from using the machine + PV of the machines's market value in Year 10) - Initial cost of the machine.
[5.1] The difference between nominal & effective rates of return is due to differences in the frequency of compounding.
[5.2] When comparing different investment plans, we should use the effective rate of return (ERR) if the frequency of compounding differs.
ERR = (1-i/m)^m - 1. Nominal annual interest rate of i and the interest is compounded at a rate of m times per year.
E.g. ERR = (1+0.1/4)^4 - 1 = 10.38%. where i = 10% and is compounded 4 time a year.
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