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Unit 1

Investment Decisions; Financing Investment; Ethical Investments

Investment: when money is spent to gain profit.

Table of Contents

Investment in a nutshell

Businesses, governments and individuals carry out investment. There are many different type of investment, including:

  • savings account
  • term deposits
  • shares
  • cash management account
  • managed fund
  • property
  • superannuation
  • debentures and unsecured notes

Financing an investment can be done either through personal savings or borrowing. Advantages of saving for an investment means no interest is paid, but you might had to have extra costs (e.g paying rent while saving for a house)

Loans have different features. Personal loans can be secured or unsecured. Home loans can either have a fixed interest rate or a variable interest rate.

A fixed interest rate is a constant rate. The repayment amount is always the same.

A variable interest rate moves up or down depending on the market. A variable rate continually changes and fluctuates. This is usually done through the RBA.

An income and expenditure account is a record of income earned and money spent during the previous week. Take a look at an example below:

Date Income Amount Date Expense Amount
1 Jul Balance available to invest $30.00 1 Jul Rent $60.00
1 Jul Pay for casual work $200.00 2 Jul Magazine $8.00
3 Jul Medicare refund $17.00 4 Jul Groceries $27.00
6 Jul Interest on deposit $47.00 5 Jul Donated to Red Cross $5.00
  Total income $294.00 7 Jul Mobile phone $20.00
……. ………………………………… ………..   Total expenses $120.00
      7 Jul Balance available to invest $174.00
      ……. ……………………………….. ………
8 Jul Balance available to invest $174.00 8 Jul Rent $60.00
8 Jul Pay for casual work $208.00 9 Jul Groceries $29.00
12 Jul Medicare refund $20.00 11 Jul Doctor bills $18.00
14 Jul Birthday gift $50.00 11 Jul New fishing rod $50.00
  Total income $452.00 12 Jul Newspaper bill $18.00
      13 Jul Entertainment $36.00
      14 Jul Petrol for car $23.00
        Total expenses $234.00
  Balance available to invest $218.00 14 Jul Balance available to invest $218.00

Ethical investments

Investors might only choose to make investments ethically. This is known as ethical investment

This can be done in two ways:

  1. Negative screening: avoids investment in some firms such as cigarette or alcohol companies
  2. Positive screening: limits investing to desirable firms such as renewable energy or healthcare

Case Study 1

Tassal is a company operating in Tasmania that produces sustainable and environmentally friendly fish. In addition to their strong emphasis on being environmentally friendly, it develops local community support programs and offers scholarships to students studying aquaculture.

Case Study 2

Bendigo Bank’s Community Bank Program allows those in rural and remote areas to have access to normal banking, which allows communities the right to operate a Bendgo Bank franchise branch. Revenue is shared between the company and the community, and Bendigo Bank provides banking support.

This can be considered as Corporate Social Responsibility. For example, Maccas uses recycled paper.

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