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The risks and benefits of
shares
Week 2 Lesson 1
Accounting
YEAR 10
Feb 2015
Learning Intention:
Develop an understanding of the risks and benefits of share ownership
Success Criteria:
Able to take notes efficiently
Able to identify and explain the risks and benefits of share ownership
Feb 2015
GKR
Think, Pair, Share
Would you like to be rich?
What does being rich mean to you?
Do you have any ideas on how to get rich?
How old do you think you will be when you are rich?
Do you think there will be risks in becoming rich?
Feb 2015
Key Vocabulary:
• Risk
• Volatility
• Legislative
• Stabilising
• Adverse
Feb 2015
Activity – Handout 1
• Create your own definitions
– Look at each of the sentences in Handout 1. Study how each word (in bold) from the vocabulary list is used.
– Now create your own definitions for each of these words.
6Wk1-L1 Dec 2014
Risks
• It doesn’t matter what the investment, there is always an element of risk. For shares the risks are:
– Risk of capital loss
– Volatility risk
– Timing risk
– Risk of poor quality advice
– Legislative risk
– Currency risk
Feb 2015
Risk of Capital Loss
• Having to sell shares at the price much lower than the original purchase price.
• No longer able to trade shares if the company fails and is delisted (can’t be traded anymore).
• If the company goes into liquidation, company assets are sold. The shareholder may suffer a complete loss or only get back a fraction of their original investment (their capital).
Feb 2015
Volatility Risk
• Share prices can rise and fall rapidly.
• Investors must accept that the value of their shares may fluctuate by as much as 50% or more in a year.
• General market risk can relate to a particular sector, e.g. mining shares are usually more volatile than industrial shares such as bank shares.
Feb 2015
Timing Risk
• There are market cycles.
• Some shares have a higher degree of risk when the overall sharemarket has risen sharply and is set for a reaction.
• Other shares have a higher degree of risk when the market goes into a strong decline, then starts to recover after some signs of stabilising.
Feb 2015
Risk of Poor Quality Advice
• Have you got your information on which shares to buy from a qualified advisor or have you got your information from hearsay or the neighbour next door?
Feb 2015
Legislative Risk
• Changes to current laws can influence your investment strategies or even individual investments.
Feb 2015
Currency Risk
• You invest overseas, e.g. in the USA.
• The Investment costs US$50 which equals A$55.00 (the value of the A$ is A$1.10 against the US $ at the time of investment)
• You sell for US$60 and bring your profits back to Australia
• You only get back $48, a loss of A$12. Adverse conditions caused the A$ to drop to A$0.80 for every US$.
Feb 2015
Brain Break
Feb 2015
Benefits
• Just as there is always an element of risk in any investment, of course, there are also benefits.
– Capital growth
– Dividend income
– Capital gains tax
– Financial control
Feb 2015
Capital Growth
• Capital growth occurs when the value of your investment increases.
Feb 2015
Dividend Income
• A dividend is the distribution of a company's net profit to shareholders.
• The amount of dividend paid varies greatly from company to company. (A company does not have to pay a dividend).
Feb 2015
Capital Gains Tax
• Capital gain is what you get whenever you sell shares and the amount you receive is greater than it cost you.
• How can a tax be a benefit? Although tax is payable on the capital gain, unlike other investments, the tax on shares is not as high.
Feb 2015
Financial Control
• Shares have the advantage of flexibility and liquidity.
• You have greater control over shares compared to other assets such as real estate. It is relatively easy and inexpensive to buy and sell relatively small amounts of shares.
Feb 2015
Feb 2015
Review:
1. Go to Infuse Learning Room 93646 and complete the quiz Shares - Risks and Benefits
2. Identify a learning strategy you used today.
Bibliography
• http://www.asx.com.au/documents/resources/shares_course_03.pdf?shares_course_03_text
• http://www.investopedia.com/ask/answers/05/industrysector.asp
Feb 2015
Week 2
Introduction to Sharemarket
..\..\Shares\Shareholder Lessons\Lesson_1.pdf
Feb 2015