Risk vs Return A World of Risk

Some terms…. Investment Stock Bond Mutual fund Liquidity

Types of Risk Risk of principal: The risk that some or all of the original deposit or investment may be lost Market risk: The risk that unforeseen events may affect the value of an investment adversely Interest-rate risk: The risk that interest rates will change Inflation risk: The risk that the return on an investment will not keep pace with inflation and the saver’s purchasing power will fall

Return is related to risk! Very High Risk: Junk bonds, penny stocks High Risk: Growth stocks, growth funds, aggressive mutual funds Moderate Risk: Income funds, balanced mutual funds, corporate bonds, blue-chip stocks Very Low Risk: Treasury bills, CDs, money market funds, FDIC Insured savings accounts

A Financial Plan A personal financial plan should include: Financial goals Net worth statement Income and expense record Insurance plan Saving and investment plan * Use an expert!

Rule of 72 To find the number of years required to double your money: Divide the interest into the # 72. The result is the approximate number of years that it will take for your investment to double. How long it will take to double your money at 12% interest? Divide 12 into 72 = six years (to double your $$)