Chapter 5
Personal Investment
Part 1: Investment Fundamentals
Part 2: Personal Investment Products
Dr. Phan Thi Minh Hue 1
Learning Objectives
01 02
Begin Investing Investment Philosophies
Build a foundation, assess risk tolerance, and select Identify active, passive, value, growth, and income
investment accounts. strategies aligned with personal goals.
03 04
Understand Risks Market Behavior
Evaluate market, inflation, interest rate, business, and Avoid speculation, chasing performance, and
liquidity risks affecting returns. emotional investing mistakes.
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Learning Objectives (cont.)
05 06
Long-Term Strategies Analyze Products
Apply diversification, dollar-cost averaging, buy- Evaluate stocks, bonds, mutual funds, ETFs, and
and-hold, and asset allocation with rebalancing. real assets for portfolio fit.
07 08
Construct Portfolio Investment Plan
Build portfolios aligned with goals, time horizon, Create a personal plan integrating strategy,
and risk capacity. allocation, and wealth-building principles.
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Part 1
Investing Fundamentals
Getting Started Philosophy
Risk Market Realities
Strategies Investment Plan
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Learning Objectives of Part 1
Get Started Philosophy Risk Factors
Explain how to begin as an investor Identify your investment Describe major risks affecting
philosophy returns
Market Realities Strategies Investment Plan
Accept realities & avoid mistakes Choose effective long-term Create your own investment plan
strategies
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LO1: How to Get Started as
an Investor
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Getting Started: The Big Picture
Investing is the process of using money to generate additional income or wealth.
Start Early Start Small Be Consistent
Time is your greatest advantage Begin with what you can afford Regular contributions compound
Understand Risk Diversify Keep Costs Low
Know what you're Don't put all eggs in one basket Fees erode returns over time
comfortable with
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Steps to Begin Investing
Financial Foundation
• Emergency fund
• Adequate insurance
• Manage debt Define Goals
Clarify what you're investing for
Assess Risk Tolerance
Understand your comfort level
Choose Accounts
Select appropriate investment vehicles
Select Products
Pick investments matching your strategy
Monitor & Adjust
Review and rebalance regularly
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Why Start Early?
Because of compound growth: Even small amounts grow significantly over time.
$350K $150K
Starting at Age 25 Starting at Age 35
Investing $100/month at 8% Same monthly investment, 10
until age 65 years later
Time > Amount. Starting early matters more than investing
large sums later.
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Investment vs. Speculation
Investing Speculation
• Long-term horizon • Short-term focus
• Based on fundamentals • High risk tolerance
• Diversified approach • Market timing attempts
• Goal-oriented strategy • Emotion-driven decisions
Garman: Beginners should avoid speculation.
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Where Beginners Should Invest
✓ Recommended ✗ Avoid
• Employer retirement plans (401(k), 403(b)) • Penny stocks
• Index funds • Crypto trading
• ETFs • Day-trading
• Mutual funds • High-fee products
• High-quality diversified portfolios
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LO2: Identify Your Investment Philosophy
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What Is an Investment Philosophy?
Your approach to:
Risk Return Expectations
How much uncertainty you accept What gains you anticipate
Time Horizon Market Behavior
When you need the money How you respond to volatility
Your philosophy shapes your portfolio. Understanding your approach is essential for
success.
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Key Investment Philosophies
Passive Investing
Active Investing Match market returns through
Attempt to beat the market index funds
through selection and timing
Value Investing
Buy undervalued companies
with strong fundamentals
Income Investing
Generate regular cash flow from Growth Investing
investments Focus on high-growth potential
companies
Students often use a mixture depending on goals.
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Passive Investing
Buy-and-Hold Index Funds / ETFs Low Cost
Long-term ownership strategy Track market benchmarks Minimal fees and expenses
Highly Diversified Market-Matching Returns
Broad market exposure Consistent with overall market
Recommended for most individuals.
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Active Investing
Attempt to beat the market Frequent trading required Requires significant skill & time
Higher costs & taxes Majority of professionals underperform indexes
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Value vs. Growth Philosophy
Value Growth
• Undervalued companies • High-growth companies
• Stable, strong fundamentals • Higher volatility
• Lower volatility • Reinvested earnings
• Dividend income potential • More suitable for young investors
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Align Philosophy With Personal Goals
Your philosophy should reflect:
Age Income Stability Risk Tolerance Investment Knowledge
Younger investors can take more risk Steady income allows greater risk Your comfort with market fluctuations Understanding enables better
tolerance decisions
Time Horizon Purpose
When you need to access funds Retirement, home purchase, education
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LO3: Risk Factors That Affect
Investment Return
Understanding risk is essential to building wealth and
achieving your financial goals.
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What Is Investment Risk?
Definition Key Principle
The probability that an investment's actual return will Higher potential returns come with higher risk. This
differ from its expected return. fundamental relationship drives all investment decisions.
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Major Types of Risk
Market Risk Interest Rate Risk
Overall market movements Changes in borrowing costs
Inflation Risk Business Risk
Purchasing power erosion Company-specific challenges
Financial Risk Liquidity Risk
Debt and leverage issues Difficulty selling assets
Political Risk Exchange Rate Risk
Regulatory changes Currency fluctuations
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Market (Systematic) Risk
Market risk affects all investments simultaneously and cannot be eliminated through diversification.
Common Triggers
• Economic recessions
• Wars and geopolitical conflicts
• Global pandemics
• Market-wide corrections
Diversification helps reduce impact but cannot remove market risk entirely.
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Unsystematic Risk
Poor Management Product Failure Competition
Leadership failures and strategic Products that don't meet market Rivals gaining market share or
missteps that harm company needs or face quality issues. disrupting the industry.
performance.
Solution: Diversification. Spread investments across multiple companies and sectors to minimize
company-specific risks.
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Risk–Return Trade-off
The fundamental principle of investing: higher risk investments offer higher expected returns to compensate investors.
Treasury Bills Stocks
Low risk, low return. Safe government-backed securities Higher risk, higher return. Greater volatility but potential
with minimal volatility. for significant long-term growth.
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Volatility (Standard Deviation)
What It Measures
Volatility quantifies how much investment returns fluctuate around their average. It's the most
common measure of investment risk.
Why It Matters
Higher volatility means greater uncertainty about future returns. Understanding volatility helps
you choose investments matching your risk tolerance.
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Diversification: Your Risk Reduction Tool
Diversification is the practice of spreading investments to reduce risk without sacrificing returns.
Asset Classes
Mix stocks, bonds, real estate, and
commodities in your portfolio.
Industries
Invest across technology, healthcare,
finance, energy, and consumer
goods.
Countries
Include domestic and international
investments for geographic
diversification.
Goal: Reduce risk without reducing expected return.
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LO4:
Market Realities
Accept what you cannot control and focus on what you can.
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Market Realities
Markets Fluctuate Prices React Quickly Prediction Is Impossible
Volatility is normal and News and information are No one can consistently predict
inevitable in all markets. rapidly incorporated into prices. short-term market movements.
Long-Term Investing Wins Costs Matter Emotions Are Dangerous
Fees and expenses significantly Fear and greed are the biggest
Patient investors who stay impact long-term returns. threats to investment success.
invested typically outperform
traders.
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Common Investor Mistakes
Timing the Market Chasing Hot Stocks
Attempting to predict market highs and lows rarely succeeds. Buying yesterday's winners often leads to disappointment.
Panic Selling Overconfidence
Selling during downturns locks in losses and misses recoveries. Believing you know more than the market is dangerous.
Poor Diversification High Fees
Concentrating investments increases unnecessary risk. Paying excessive costs erodes returns over time.
Ignoring Taxes Emotional Decisions
Tax-inefficient investing reduces after-tax returns. Letting fear and greed drive choices leads to poor outcomes.
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Behavioral Biases
Psychological tendencies that lead to irrational investment decisions.
Anchoring Loss Aversion Herd Behavior
Fixating on irrelevant reference Feeling losses more intensely than Following the crowd instead of
points when making decisions. equivalent gains. independent analysis.
Confirmation Bias Overconfidence
Seeking information that confirms existing beliefs. Overestimating your knowledge and abilities.
Understanding these biases improves investment performance and decision-making.
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Accept What You Cannot Control
You Cannot Control You Can Control
• Market volatility and corrections • Your savings rate
• Interest rate changes • Diversification strategy
• Economic cycles and recessions • Investment costs and fees
• Global events and crises • Your own behavior and discipline
Focus your energy on what you can control.
Accept market realities and build a disciplined investment approach.
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LO5: Long-Term Strategies
Four proven approaches for building wealth over time.
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Four Safe & Effective Long-Term Strategies
These time-tested strategies from Garman help investors build wealth while managing risk.
01 02
Buy and Hold Dollar-Cost Averaging
Invest regularly and hold for long periods, avoiding Invest fixed amounts regularly to reduce timing risk and
unnecessary trading. smooth volatility.
03 04
Diversification Asset Allocation & Rebalancing
Spread investments across different assets to significantly Maintain target investment mix and rebalance periodically.
reduce risk.
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Buy and Hold
The buy and hold strategy involves purchasing quality investments and holding them for extended periods.
Key Principles
• Invest regularly in quality assets
• Hold for long periods (years or decades)
• Avoid unnecessary trading and market timing
• Let compound growth work its magic
This strategy minimizes costs and taxes while maximizing long-term growth potential.
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Dollar-Cost Averaging (DCA)
Invest a fixed amount at regular intervals, regardless of market conditions.
Reduces Timing Risk Smooths Volatility Encourages Discipline
Eliminates the need to predict Buy more shares when prices are Automates investing and removes
market highs and lows. low, fewer when high. emotional decision-making.
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Diversification
Spread investments across different assets to reduce risk significantly.
Stocks Bonds
Equity ownership in companies for growth potential. Fixed-income securities for stability and income.
Real Estate International Assets
Property investments for diversification and income. Global investments for geographic diversification.
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Asset Allocation & Rebalancing
Decide the proportion of different asset types in your portfolio and maintain that mix over time.
Stocks Bonds
Growth-oriented investments with Income-focused securities with lower
higher risk and return potential. risk and steady returns.
Other Investments Cash
Alternative assets like real estate, Liquid reserves for emergencies and
commodities, or private equity. opportunities.
Rebalance periodically
to maintain
Dr. Phan your target asset mix as market movements shift your portfolio.
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LO6: Create Your Own Investment Plan
Define Your Goals
Identify what you're investing for and your time horizon.
Assess Risk Tolerance
Understand how much volatility you can handle emotionally and financially.
Choose Asset Allocation
Decide your mix of stocks, bonds, and other investments.
Implement Strategy
Select specific investments and begin regular contributions.
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Steps to Build Your Investment Plan
01
Define goals (short, medium, long-term)
02
Assess risk tolerance
03
Determine time horizon
04
Choose investment philosophy
05
Select asset allocation mix
06
Choose low-cost diversified products
07
Automate contributions
08
Review annually
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Key Tools for Your Plan
• Retirement accounts
• ETFs and index funds
• Target-date funds
• Robo-advisors
• Brokerage platforms
• Automatic monthly investments
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Final Takeaways of Part 1
Start investing wisely
Choose a philosophy aligned with your goals
Understand major risk factors Avoid common mistakes
Apply four proven long-term strategies Build your own investment plan
Invest early. Invest consistently. Invest for the long run.
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