2. Monday, February 10 th Warm Up: Please answer these questions on your warm up: –How would you explain the power of “compounding” to someone? –How does opportunity cost relate to a class on building wealth? –Define “RISK”

3. Today’s Goals … Explain the relationship between risk and return Categorize investments as lending or owning investments

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

5. 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

6. 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

7. 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.

8. Use the risk pyramid to compare investments.Use the risk pyramid to compare investments. Categories:Categories: See Your Risk in Perspective  High  Moderate  Low Peak → most risky Base → most reliable

9. Categorize investments as lending or owning investments

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

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

12.  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

13. Lending Investments Are lending investments right for you? Here’s why I like them … –More secure/ less risk –Easy Access –Several options

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

15. 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

16. Owning Investments Are owning investments right for you? Here’s why I like them … –More reward (which does mean more risk) –Easy access for stocks, stock mutual funds –Several options, with a variety of risk levels –TONS of information available to learn about them

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

18. In Summary … Two categories of securities (or investments) –Lending –Owning Lots options Higher the risk, higher the reward Opportunity cost and risk – the relationship (add note to your risk tab)

19. Practice Quiz

20. Stock Research Take a look at the stocks you’ve selected. Lending or ownership investment? How could you evaluate their level of risk? –Volatility

21. In Summary REMEMBER: Need to finalize your list of TEN stocks for tomorrow’s class … prepare to create your stock portfolio! You’ll become Company Owners (in THEORY!)

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