 Goals:  Explain the relationship between risk and return when investing.  Describe how to evaluate the level of risk you should accept when investing.

 Investing  Risk  Return  Diversification

 Deposit in a savings account  Buying a car for personal use  Putting money under your mattress  Which one of these is an investment?  Depositing in a savings account-  WHY?  Because you are earning money!

IInvesting is saving in a way that earns income. LLet’s name all the examples of investments that we can think of! IIf you compare all of these investment options what conclusion can you draw? SSome investments are riskier than others

 The chance that an investment will decrease in value is risk.  FDIC savings account vs. stock market  The income you earn on an investment is called your return.

 Your rate of return is measured as a percentage of the amount invested.  Suppose you invest $1000 in a new coffee shop business. At the end of one year, you receive $100 as your share of the company’s profit.  What is your return?  $100  What is your rate of return?  10%

 The general rule of investing is “the higher the potential rate of return, the greater the risk.” Rate of return High Risk High

 Have you ever heard the saying “don’t put all your eggs in one basket”? What does this mean and how does it apply to investing?  When investing you should not put all your money in one place. If that investment fails, you lose all of your money.

 A better choice is to distribute your money among a variety of investments. Investing in various businesses with different levels of risk is called diversification.  When you diversify, you reduce your overall risk of loss.  For example if one investment goes badly, the others might do well and you can still end up with a good overall return.

 During your life span, when is a better time to take risks?  When you are younger as you have many income- earning years left and more time to recover from any losses.  If you are older and have most of the money you will need for retirement you may not need or want to take risks.  DON’T MAKE RISKY INVESTMENTS WITH MONEY YOU CANNOT AFFORD TO LOSE!