PF: Investments


 

Investment-Pyramid_full

We invest money in everything from rare coins to real estate because we expect a favorable financial return in the future. However, not all investments turn out as we hope and expect. Nearly every kind of investment involves some sort of risk. For example, the price of rare coins or houses can go down as well as up. Risk is inherent in all investments. Some risks are ones investors cannot control. Other risks can be managed. Generally, there is a strong relationship between risk and reward. The higher the potential reward an investment offers, the higher the risk of losses rather than gains. Given that relationship, there is no free lunch in investing. Investors who choose low risk may earn meager returns. Investors who seek higher returns through high-risk investments may suffer big losses. The key is to develop a risk/reward ratio with which you are comfortable. Therefore, in choosing what to invest in it is important to weigh the various risks against the potential rewards. Today, students will learn about the five types of risk, and compare the risks and rewards associated with several frequently-used investment vehicles.

47l

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