Learn about the risks and benefits associated with investing in the Sharemarket

1. The risks and benefits of
shares
Week 2 Lesson 1
Accounting
YEAR 10
Feb 2015

2. 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

3. 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

4. Key Vocabulary:
• Risk
• Volatility
• Legislative
• Stabilising
• Adverse
Feb 2015

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Legislative Risk
• Changes to current laws can influence your
investment strategies or even individual
investments.
Feb 2015

12. 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

13. Brain Break
Feb 2015

14. 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

15. Capital Growth
• Capital growth occurs when the value of your
investment increases.
Feb 2015

16. 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

17. 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

18. 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

19. 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.

20. 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

21. Week 2
Introduction to Sharemarket
....SharesShareholder LessonsLesson_1.pdf
Feb 2015