Risky Business Types of Investments Objectives A Explain

Risky Business Types of Investments

Objectives: A. Explain the relationship between risk and return B. Describe the risks and returns of lending investments C. Describe the risks and returns of ownership investments

Why risk it? • Risk: the possibility of loss • Risk-takers: people who face risk with a positive attitude • Return: reward or benefit • Investments=risky So why would anyone want to invest? !

Can you handle it? • High risk=potential for higher return • How much risk can you handle? ▫ What you want to accomplish ▫ How much time you have to accomplish it ▫ Your personality So is investing like playing the lottery?

Investment Risk Pyramid Collectibles High Real Estate, Stock, Mutual Funds Moderate Savings Accounts, MMAs, CDs, and Bonds Low

That’s How I See It! • Securities: the legal lending or owning agreements between individuals, businesses, or governments ▫ Lending Investment: allowing someone to borrow your money for a period of time, for a price �Examples: savings acct, MMAs, CDs, and bonds ▫ Ownership Investment: investments that provide owners’ rights in return �Examples: stocks, mutual funds, real estate, collectibles

Types of Lending Investments • Savings Account: lend money to a bank of the benefit of being able to access your money anytime ▫ Pros/Cons ▫ Interest Rate=1% • Money Market Accounts (MMAs): bank account that earns interest, restrictions ▫ Pros/Cons ▫ Interest Rate=2 -3%

Types of Lending Investments • Certificate of Deposit (CD): lend money to a bank at a set interest rate for a particular period of time (1 month-5 years) ▫ Pros/Cons ▫ Interest Rate: 4% (5 years, $500 -1, 000) • Bond: like a CD but offered by a government, municipality, or corporation (instead of a bank) ▫ Pros/Cons ▫ Interest Rate: same as CD You can research the current interest rates for bank accounts and CDs at www. bankrate. com.

Types of Ownership Investments • Stocks: (share) a piece of paper (real or virtual) which states you own part of the corporation ▫ Pros/Cons ▫ Rate of return: approx. 10 -11% avg/year (long term) • Mutual Funds: combination of stocks from different corporations or agencies, usually from different industries ▫ Pros/Cons

Types of Ownership Investments • Real Estate: buy a home to live in, a vacation home, an investment property, land, etc. ▫ Pros/Cons • Collectibles: items that gain or lose value over time (baseball cards, Star Wars action figure, art) ▫ Pros/Cons

So…what did you learn? A. Explain the relationship between risk and return B. Describe the risks and returns of lending investments C. Describe the risks and returns of ownership investments