Investing Basics

InvestingInvesting – saving in a way that earns income

Forms of Investing – savings accounts, CDs, money market accounts, stocks, government bonds

Investing (cont.)There is no “right” way to invest – it must fit your

personal financial situation

Considerations: 1. age – How soon will you retire? 2. salary - What is the right amount to risk?3. financial responsibilities - Do you have a family to support? Are you in debt?4. risk tolerance – What is a comfortable risk level?5. values – Do your investments reflect your values?

RiskRisk – the chance that an investment will

decrease in value

All investments involve risk-Almost no risk for bank accounts and government bonds-High risk for investment in businesses

ReturnReturn – the income you earn on an investment

Rule of Thumb – the greater the risk, the greater the potential rate of return

DiversificationDiversification – investing in various businesses

with different levels of risk

Reduces the overall risk of loss-If one investment loses, the others could gain and your money still increases

Diversification (cont.)Diversify according to financial needs

-Young – more years to earn – may want to be more risky-Older – saved enough to retire – may want to be less risky

Risk Tolerance Quiz

Tolerance – the level of risk that is comfortable for you

Sample Risk Tolerance Quiz

Aggressive investors (20-28 pts)An aggressive investor is an investor who is

willing to accept a higher degree of investment risk in exchange for a chance to earn a higher rate of return.

Investment risk is the volatility of investment returns. A basic investing principle states that a higher degree of investment risk is required to earn a potential higher rate of return.

Moderate investors (15-19 pts)An investor who is willing to accept some investment risk

in exchange for a chance to earn a higher rate of return. Investment risk is the volatility of investment returns.

A basic investing principle states that a higher degree of

investment risk is required to earn a potential higher rate of return. On the risk-tolerance scale, a moderate investor is in between an aggressive and conservative investor.

This means you are willing to accept some risk in exchange for a potential higher rate of return.

Conservative Investors (under 15pts)An investor who is unwilling to accept a

higher degree of investment risk in exchange for a chance to earn a higher rate of return. Investment risk is the volatility of investment returns.

A basic investing principle states that a higher degree of investment risk is required to earn a potential higher rate of return.