LAP: QS-032

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

Explain the relationship between risk and return. Objective

Investors take a risk for the potential return. Why Risk It? Risk = possibility of loss Return = potential reward or benefit

High potential return → high riskHigh potential return → high risk Moderate potential return → moderate riskModerate potential return → moderate risk Low potential return → low riskLow potential return → low risk Risk and Return

What determines how much risk you can handle? What you want to accomplish What you want to accomplish How much time you have How much time you have Your personality Your personality Handling Risk

Protect Your Initial Investment High risk → Initial investment may be lost.High risk → Initial investment may be lost. No risk → Initial investment is secure.No risk → Initial investment is secure.

Use the risk pyramid to compare investments.Use the risk pyramid to compare investments. Categories:Categories: See Your Risk in Perspective  High  Moderate  Low Collectibles Real Estate, Stocks, Mutual Funds Savings Accounts, MMAs, CDs, and Bonds Peak → most risky Base → most reliable

Describe the risks and returns of lending investments. Objective

Securities = legal lending or owning agreements Securities OWNING INVESTMENTS LENDING INVESTMENTS SECURITIESSECURITIES LendingLending OwningOwning Categories:

Lending investment = lending money for a priceLending investment = lending money for a price Lending Investments

 Savings account Lending Investments—Types  Certificate of deposit  Money market account Lend money to a bankLend money to a bank Lend money to a government or corporationLend money to a government or corporation  Bonds

Describe the risks and returns of ownership investments. Objective

Ownership investment = owners’ rights High or moderate risk Ownership Investments

Stock mutual fund = owning pieces of several corporationsStock mutual fund = owning pieces of several corporations Ownership Investments—Types Stock = owning a piece of a corporationStock = owning a piece of a corporation Real estate = owning propertyReal estate = owning property Collectible = owning an item valuable to you or someone elseCollectible = owning an item valuable to you or someone else

Need to invest for retirementNeed to invest for retirement Home-improvement connectionHome-improvement connection Research reveals risks.Research reveals risks. There’s No Place Like Home Quick Case

MarkED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, MarkED Version 1.0 Copyright  2007 MarkED Resource Center

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