What Are Your Investing Options - Financial Literacy - أول ثانوي

al lessonلايال Link to 4.3 What Are Your Investing Options? www.leneda.54 Learning Objective Once you have completed this lesson, you should be able to: ⚫ explain the differences between long-term and short term investment ⚫ compare the features and benefits of different investment options such as T-bills, Sukuk, bonds, and stocks. وزارة التعليم 126 Financial Literacy Key Terms Short-term investment Stock Long-term investment Equity Dividend Share T-bills Maturity Money market mutual fund Yield Sukuk Crowdfunding Bond Investment Goals There are three main goals of investing: 1. Safety of capital: although no investing is completely safe, the safest investments are usually government-issued Sukuk and bonds, which the government and government-owned companies use to borrow money for investing in large capital projects like Neom. 2. Income: investors want to receive regular returns from their investment which often involves more risk. This means the investment is likely to keep up with inflation but may be riskier. 3. Capital growth: when the investor sells the asset, the selling price should be higher than the purchase price.

There are two types of investment, short term and long term. Short Term Short-term investment goals are usually for three years or less - they can even be for less than one year. The aim should be a low level of risk and a high level of security of capital. The investor doesn't want to lose any money when they need to sell an investment to get their cash. SHORT-TERM GOAL EXAMPLES Short-term investmnat assets that can be converted into cash, carbe suht within a short period of time- typically within 1-3 years Deposit for an apartment or mortgage Emergency fund Vacation Remember: Investing for the short term means that you are unlikely to earn much of a profit. ⚫ The riskier the investment, the higher the potential reward or loss. Long Term Long-term investment goals are at least four to ten years in the future. Due to the length of the Investment, the level of risk can be higher as the investor does not plan on accessing their cash quickly. Long-term investing requires the shares to have regular annual. divi- dends which can be reinvested. Learn unvestment assets that an individual or company intends to hold for a period of more than three years LONG TERM GOAL EXAMPLES Children's Vacation education fund Retirement home درارة التعليم 2027-1445 CHAPTER 4 Investing 127

Dividnad part of the profit of a company that is paid to shareholders Remember: ⚫ Long-term investments can have a higher risk as it does not matter if the price rises or falls every day, as long as the share prices are stable, and the company pays dividends. • Long-term investments will be spread between companies with income return and capital growth potential. Long-term investments are much less liquid than short-term investments. T-bills short-term debt obligation Issued by the Saudi Arabian treasury and backed by the Saudi Arabian government with a maturity of less than one year Maturity the date un which a debt must be paid in full Sk a Sharia compliant bond-like instrument used in Islamic finance representing a direct asset ownership interest Bond an indirect de staligation Issued by governmeals and businesses وزارة التعليم Investment Tools There are many ways to invest, depending on the level of risk accepted and the interest of the investor into the process. Investors often invest small amounts of money monthly. Therefore, choosing their own investment may not be the best strategy. The section below explores some of the investment tools available. T-bills T-bills are a very safe form of investing. Governments often need to raise capital from the stock exchange to finance short-term projects and a T-bill can reach maturity in as little as four weeks up to 52 weeks. As the money is loaned to the government the investment is very secure, however it has a very small return: ⚫ The government promises to pay the buyer, e.g. SAR 1,000 in four weeks. The government sells the T-bill at a discount to the buyer at SAR 990. ⚫ The difference is the return received for the investment. Bonds and Sukuk The terms Sukuk and bond refer to securities with a longer-term goal. These investments may be for 10 years, 20 years, or even longer. ⚫ Sukuk The owner of a Sukuk certificate buys an asset (e.g. machinery) and has ownership of the machinery as long as they have the certificate. 128 Financial Literacy

• bond Stocks The organization selling the certificate promises to buy back the Sukuk at a future date. The certificate owner receives a share of the earnings generated by the asset. The owner of a bond certificate provides finance, however there is no asset attached to the purchase. The organization selling the certificate promises to buy back the bond at a future date. The organization selling the bond pays a fixed amount every month to the bond holder. Stocks are bought and sold on the stock exchange. These form the majority of an investor's portfolio. Stocks are sold to raise funds to operate a business. This equity allows the owner a share of the assets and profits of the business until the share is sold. A stockholder does not own the company as the company is legally owned by itself. Own- ing stock means a stockholder is able to: ⚫ vote in shareholder meetings ⚫ receive dividends ⚫ sell the shares to another person. Money Market Mutual Funds A money market mutual fund allows a large number of smaller investors to invest directly into a variety of short-term shares. As these are usually issued in large numbers, a single investor may not be able to purchase them. The yield on these investments are usually low as there is often little risk involved. Cryptocurrency A cryptocurrency is a digital currency that is not reliant on a central authority, such as a government or bank. The most famous example is Bitcoin. Some people boast of making money trading on cryptocur- rency; however, this is extremely risky. Unlike most schemes through banks or governements, cryptocurrency is not protected, and crypto- Stock a financial instrument represen ting the ownership of a fraction of the issuing company Equity the money value of a property business after debts have been subtracted Share allows the owner of the stock to own a portion of the company's assets and profit Money market mutual fund an alternative to the checking accounts, savings accounts, and savings certificates issued by banks Kinid a method of measuring the return for an investment over a set period of time as a percentage وزارة التعليم 0123-1445 CHAPTER 4 Investing 129

Crowdfunding the use of small amounts of capital from a large number of individuals to finance a new business venture currency exchanges are subject to scams and theft through hacking. The currencies also have unpredictable rises and falls in their costs, meaning somebody could invest a lot of money only to find it become worthless. As a result of these dangers, some countries have begun to restrict or ban cryptocurrency exchanges. Crowdfunding New companies often have difficulty raising finance from traditional investment options, such as banks and the stock exchange, as they have no trading history and investors are unwilling to trust them with capital. In order to purchase materials and pay rent, new companies can crowdfund capital. Crowdfunding has advantages for both companies and investors (see Figure 4.3.1). FIGURE 4.3.1 Advantages of Crowdfunding Advantages for Companies It is a fast method of raising finance with little or few fees. It can be a valuable form of marketing and promotion. It can be a method of gaining feedback and expert advice from interested investors. Advantages for Investors Small, easily accessible investment opportunities are available. If equity is purchased, there is a potential for large returns on investment if the business is successful. Investors have an opportunity to buy or receive the product for free, or at a very reduced cost, before anyone else. What is a successful crowdfunded product in Saudi Arah ? What were the investor rewards? عرف الكلية 130) Financial Literacy XXXX → crowdfunding

Review Questions Choose the correct answer. 1. There is only one way to invest your money. a. true b. false 2. Which of the following is NOT an example of a long-term goal? a. a child's education fund b. an electronic games console c. retirement d. a vacation home 3. Which of the following is NOT a stock market investment tool? a. mortgage b. T-bill c. stock d. Sukuk 4. A vacation is a short-term goal. a. true b. false 5. Which of the following is NOT an investment opportunity? a. buying a property b. buying a computer game c. paying into a pension d. buying shares 6. Every person has the same attitude to risk. a. true b. false وزارة التعليم 20171-1445 CHAPTER 4 Investing: 131