The Risk and Return of Growing Money. Human Capital. Capital Assets. Two Types of Capital. You work for money. Your money works for you. Cash Flow. Four Choices for Cash Flow. Spend it. Donate it . Hold it. Invest it. Two Basic Investment Choices. OWN. LEND. Two Basic Positions.
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Human Capital Capital Assets Two Types of Capital You work for money Your money works for you Cash Flow Four Choices for Cash Flow Spend it Donate it Hold it Invest it Two Basic Investment Choices OWN LEND Two Basic Positions PASSIVE ACTIVE FINANCIAL RETURNS The Path of Money
Two Investment Choices • Lending • Those in which you lend your money to an organization which typically pays you a fixed rate of interest • Ownership • Those that you own a piece of some asset or company and have the ability to generate revenue and future profits
PASSIVE ACTIVE “Others Control It” “You Control It”
Balancing Risk and Return Less Risk Less Return More Risk More Return Sources: National Institute of Consumer Education – Eastern Michigan University/AIG KW Research 6
A Closer Look at a Few Investment Options Futures Collectibles More Risk More Return Junk Bonds Speculative Common Stocks Precious Metals Less Risk Less Return Owning Your Own Business RE Investment Properties Puts And Calls Blue Chip Common Stocks Growth Mutual Funds High Grade Preferred Stock Balanced Mutual Funds High Grade Convertible Securities High Grade Municipal Bonds High Grade Corporate Bonds Fixed Annuities Money Market Mutual Funds Treasury Securities Certificates of Deposits Money Market Accounts Insured Checking and Savings Accounts Note: Any uninsured investment vehicle is a risk Source: Adapted from Investment Pyramid – Essex Corporation
Questions for Your Financial Advisor • Does my investment appreciate in value? • Will it generate income through interest or dividends? • Is it likely to outperform inflation? • What are some risks I might encounter? • Are there any tax advantages? • What fees and charges are involved? • Can I borrow against it? • Can I sell it quickly? • What are some economic factors that should affect my decision to buy, hold or sell? • Should I consider diversification?
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