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Risky Business

Risky Business. Types of Investments. Objectives:. Explain the relationship between risk and return Describe the risks and returns of lending investments Describe the risks and returns of ownership investments. Why risk it?. Risk: the possibility of loss

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Risky Business

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  1. Risky Business Types of Investments

  2. Objectives: • Explain the relationship between risk and return • Describe the risks and returns of lending investments • Describe the risks and returns of ownership investments

  3. 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?!

  4. 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?

  5. Investment Risk Pyramid High Moderate Low

  6. 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

  7. 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%

  8. 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.

  9. 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

  10. 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

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

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