Jamie wanted advice about the best way to make money on money she received for her birthday. Her brother told her, “Buy a lottery ticket. It may be risky but you could become a millionaire.” Her grandmother said, “put it under your mattress and save it for a rainy day.” Her best friend advised her, “Buy stock in Sunoco, gas prices are always in the news.” Her aunt said, “Put it in a saving account and you can earn 1% interest a year for the next 20 years.”

 The chance of losing all or part of the value of an investment. Risk can be divided into three categories:  Conservative-fixed income and preferred stocks  Moderate-growth stocks-particularly young companies with great growth potential  Speculative-stocks that are highly unpredictable. Many dot com stocks are highly speculative.

 Risk tolerance: An investor’s ability to accept loss of some or all of the money he or she has invested, based on a number of factors including age, financial stability, amt of time before money is need.  Beta: A calculation that helps measure the level of risk in investing in a stock.  Above 1 is volatile, below 1 is conservative

 Price/Earnings Ratio (P/E ratio):Ratio of stock’s price per share to its earnings per share.  Volatility: The potential unpredictability or instability of a stock. A volatile stock is a risky stock-one that can go very high or very low.

 Inflation risk: the chance the money you have invested will decline in value as rising prices shrink the value of the dollar.  Principal risk: the degree of probability that your original investment will decline in value or be lost entirely.

 Liquidity risk: the possibility you won't be able to sell or convert a security into cash when you need the money  Market risk: One common investing risk is the up and down movement in the value of an investment — its volatility  Valuation Risk: The chance that the stock you bought is overvalued limiting the growth potential of the investment.

 Securities and exchange committee  Monitors brokerage firms and brokers  Madoff head of Nasdaq for 10 years  What’s a Ponzi scheme?  Not really investing money  Got name from an Italian (Ponzi) in the 20’s who told people they would get great returns but took money instead.  Culprits get caught when lots of people want their money back.