Don't Put all your Eggs in One Basket
Diversification and Risk
Diversification and Risk
If you place all of your savings in a single savings or investment instrument, such as a single company's stocks or bonds, and that company fails, you could lose everything, much like dropping the basket that holds all of your eggs.
Don't Put all your Eggs in One Basket
Diversification and Risk
Portfolio
a collection of financial investments held by an individual or financial organization
Diversification
investing in various financial instruments in order to reduce risk
Diversification and Risk
Would you bet $100 on a coin flip if the deal were that you keep your $100 and receive an additional $5.00 for heads, but lose $100 for tails?
Would you bet $100 on a coin flip if the deal were that you keep your $100 and receive an additional $100 for heads, but lose $100 for tails?
Would you bet $100 on a coin flip if the deal were that you keep your $100 and receive an additional $400 for heads, but lose $100 for tails?
Diversification and Risk
Forms of Saving and Investing: Some Benefits and Costs·Checking accounts ·Savings accounts·Certificates of Deposit·U.S. Government Bonds·Municipal Bonds and Special Purpose Bonds·Corporate Bonds·Mutual Funds·Stocks·Real Estate·Collectibles·Commodities
Diversification and RiskThe Pyramid of Risks and Reward
Highest Risk - Highest Potential Return or Loss
4. government bonds3. certificates of deposit
5. corporate bonds6. mutual funds
7. stocks8. real estate9. collectibles
1. cash and checking accounts2. savings accounts
10. commodities
Lowest Risk - Lowest Potential Return or Loss
Diversification and Risk
Invest only what you can afford to lose.
Invest at your comfort level.
Invest according to your age.
Diversification and RiskMutual Funds
A mutual fund pools investors' money.
The fund puts its investors' money into the market on their behalf.
In effect, investors own small amounts of many different assets.
Mutual funds enable investors to avoid the risk that comes from owning any one asset. In other words, mutual funds make it easy to diversify.
Diversification and Risk
Investment Situations
You received $1,000 in gift money for your 8th-grade graduation. You have no need for this money anytime soon.
You have $18,000 that you'll need for college next year.
You inherited $10,000 from your great aunt that you would like to use as a down payment on a house you plan to buy next year.
savings accountvs.
U.S. government bond
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checking accountvs.
certificate of deposit
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certificate of depositvs.
U.S. government bond
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U.S. government bondvs.
municipal bond
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municipal bondvs.
special purpose bond
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special purpose bondvs.
corporate bond
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corporate bondvs.
growth mutual fund
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growth mutual fundvs.
blue chip stock
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blue chip stockvs.
real estate
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real estatevs.
gold and silver
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art collectionvs.
income mutual fund
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stuffed animal collectionvs.
gold and silver
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gold and silvervs.
savings account
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income mutual fundvs.
growth mutual fund
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penny stockvs.
blue chip stock
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