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Investment Learning Programme Module one - Investment principles. Presenter’s name Date 00 Month Year Zurich International Life. For relevant financial professional use only. Module one - Investment principles. Agenda. What is investment? Purposes of investment

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Investment Learning Programme Module one - Investment principles


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    1. Investment Learning ProgrammeModule one -Investment principles Presenter’s name Date 00 Month Year Zurich International Life For relevant financial professional use only

    2. Module one - Investment principles Agenda • What is investment? • Purposes of investment • Direct vs pooled investment • Risk and reward • Types of risk • Diversification • Correlation • Regulation and money laundering

    3. What is investment? Storing current surpluses for future use

    4. What is investment? Storing current surpluses for future use Requirements • Store of wealth • Demand for the item • Acceptable price • Banking • Protection against inflation

    5. What is investment? Investment is an art and not a science • Decisions made without knowing what the future holds • Only tested over time • Past performance is not a guide to future performance

    6. Purposes of investment Three stages of the investment life cycle Creating capital (surplus cash) from income 1

    7. Purposes of investment Creating capital from income Three stages of the investment life cycle 1 2 Increasing capital from capital

    8. Purposes of investment Creating capital from income Three stages of the investment life cycle 1 Increasing capital from capital 2 Producing income from capital 3

    9. Purposes of investment Stage 1 - Creating capital from income • Surplus income • Regular savings • Future need

    10. Purposes of investment Stage 2 - Increasing capitalfrom capital • Surplus capital available • No immediate need • Investment strategy required

    11. Purposes of investment Stage 3 - Producing income from capital • Profit taken • Greater need for income rather than capital • Capital can be reduced

    12. Direct vs pooled investment Direct investment • Individual securities (e.g. stocks and shares) • Costly • Expertise required

    13. Direct vs pooled investment Pooled investment • Wide range of securities available • Smaller investors can be accommodated • Investment expertise provided by fund manager

    14. Pooled investment Pooled investments – the advantages • Regulated • Professional investment management • Diversification – many stocks spread risk • Safe custody • Economies of scale – lower charges than direct investment • Minimal paperwork

    15. Pooled investment Fund management duties • Manage the portfolio - follow the investment objectives • Consider all types of investors

    16. Pooled investment Fund management duties • Manage the portfolio - follow the investment objectives • Consider all types of investors Entering

    17. Pooled investment Fund management duties • Manage the portfolio - follow the investment objectives • Consider all types of investors Continuing Entering

    18. Pooled investment Fund management duties • Manage the portfolio - follow the investment objectives • Consider all types of investors Continuing Entering Exiting

    19. Risk and reward People invest in the hope of achieving a profit, but at the risk of making a loss • Inflation can reduce profit • Investment strategy is important • Equities can preserve wealth in ‘real’ terms, taking inflation into account

    20. Risk and reward Volatility of stock market investment MSCI The World Index total return over the last 15 years Source: Financial Express 18/03/1995 to 18/03/2010 bid-bid, gross (old basis), based In U S dollar, calculation indexed.

    21. Risk and reward • Every investment has the potential for reward and an element of risk

    22. Risk and reward • Every investment has the potential for reward and an element of risk • Generally, the greater the potential for reward, the greater the risk of loss Risk Reward

    23. Risk and reward • A spread of investments can reduce risk - diversification • Risk/reward balance is important A B Risk C Reward

    24. Types of risk • Market risks – political and economic factors • Currency risk – exchange rate movements • Credit risk – can you trust the investment provider? • Stock specific risk – share prices move down as well as up • Inflation – can reduce the purchasing power of savings

    25. Diversification • Type of investment strategy • Used to reduce risk • Spread of investments • Principle can be applied to all investors

    26. Correlation • Correlation – the way that investments interact • Different types of investment can behave differently to the same set of circumstances • A well-structured portfolio uses this information wisely • A diversified portfolio is uncorrelated

    27. Correlation • Correlation – the way that investments interact • Different types of investment can behave differently to the same set of circumstances • A well-structured portfolio uses this information wisely • A diversified portfolio is uncorrelated WHY?

    28. Correlation A theoretical example… Source: Zurich International Life, for illustrative purposes only

    29. Regulation • Regulation ensures a fair and orderly stock market in normal times • Protects investors in times of disorder • Major stock market crashes: • Wall Street - 1929 • Global - October 1987 • Dot com - Spring 2000 • Global - 9/11 2001 • Collapse of some of Wall Street’s largest names throughout 2008 • Financial Services Authority – UK • Securities and Futures Commission – HK

    30. Principles of good regulation • Efficiency and economy • Sound management • Fair level of regulation • Innovation encouraged • Overseas cooperation • Competition

    31. Isle of Man regulation • Conforms to internationally accepted principles of good regulation • Financial Supervision Commission • Banks, investment businesses, collective investment schemes, building societies • Insurance and Pensions Authority • Insurance companies • Investor protection and compensation • Only international financial centre to provide compensation scheme for all main areas of finance

    32. Money laundering • Investing the proceeds of crime in legitimate financial vehicles • Usually associated with drug trafficking and terrorist activity • International problem • Origin of wealth is important

    33. Module one – Investment principles Summary • Concept of investment • Purposes of investment • Direct investment • Pooled investment • Risk and reward • Types of risk • Volatility • Diversification • Correlation • Regulation

    34. Module one – Investment principles Any questions?

    35. Important information Zurich International Life is a business name of Zurich International Life Limited. Zurich International Life Limited is fully authorised under the Isle of Man Insurance Act 2008 which ensures that the Company has sound and professional management and provision has been made to protect policy owners. For life assurance companies, the Isle of Man’s Life Assurance (Compensation of Policyholders) Regulations 1991, ensure that in the event of a life assurance company being unable to meet its liabilities to its policy owners, up to 90% of the liability to the protected policy owner will be met. The protection applies to the solvency of Zurich International Life Limited and does not extend to protecting the value of the assets held within any unit-linked funds linked to your clients’ policy. Zurich International Life Limited is registered in Bahrain under Commercial Registration No. 17444. Zurich International Life Limited is authorised by the Qatar Financial Centre Regulatory Authority. Zurich International Life Limited is registered (Registration No.63) under UAE Federal Law No.6 of 2007 and its activities in the UAE are governed by such law. Zurich International Life Limited is authorised by the Monetary Authority of Singapore to conduct life insurance business in Singapore. Zurich International Life is only able to give information on the products of Zurich International Life Limited. Calls may be recorded for training and quality purposes. Issued by Zurich International Life Limited which provides life assurance, investment and protection products and is authorised by the Isle of Man Government Insurance and Pensions Authority. Registered in the Isle of Man number 20126C. Registered office: 43-51 Athol Street, Douglas, Isle of Man, IM99 1EF, British Isles. Telephone +44 1624 662266 Telefax +44 1624 662038 www.zurichinternational.com Approved by Zurich International Solutions Limited, UK Life Centre, Station Road, Swindon, Wiltshire, SN1 1EL, United Kingdom. Zurich International Solutions Limited is authorised and regulated by the Financial Services Authority for the purposes of promotion of the products offered by Zurich International Life into the United Kingdom. Other rules of the Financial Services Authority may not apply to Zurich International Life Limited as a non-UK based insurer. The rules and regulations made by the Financial Services Authority and made under the Financial Services and Markets Act 2000 may not apply to policy owners outside the United Kingdom. Zurich International Life Limited is part of the Zurich Financial Services Group which has a representation in more than 50 countries. MSP9233 (04/10)