04.02 Taking Risks
Use this chart to take notes from the lesson. You may also research from outside sources, however, be sure to cite these in MLA format. You must choose
three different
investments, one from
each different risk level
(aggressive, moderate, and conservative).
Then respond to the questions in part two.
Part One—Review the Investment Types
Type of Investment
Explain what the investment is and how it works.
Explain the level of risk and potential return on investment.
Provide a real-world example of this investment.
Discuss how taxes, fees, and inflation could positively or negatively impact this investment and how.
Investment Choice #1
Certificate of Deposit (CD) - This is a safe way to save money, but it is hard to get out if needed. Liquidity is offered with a penalty. It also requires a minimum deposit to invest.
This is a conservative investment. It earns more money than a traditional savings account. The interest rate increases with the term of the investment. The risk is low, but the market price is high and the rate of return is low.
One example of a certificate of deposit is offered by the Bank of America. One of their products comes with a minimum balance of $10,000 with an option to choose terms between 7-35 months.
Any interest earned over $10 is usually taxable and must be reported to the IRS. This puts a dent in my overall return. I may get charged a fee if I want to take my money out before the term is over. As inflation rises, interest rates usually rise along with it. What I considered a good CD rate at the time of purchase may no longer be competitive in the future.
Investment Choice #2
A mutual fund is a share of ownership in a mixture of companies. It requires a minimum amount of money to invest.
A mutual fund can earn significantly more money, but there is also the risk to potentially lose more.
One of the most popular mutual funds available is the Vanguard S&P 500 index fund, which owns the 507 total stocks that are represented in the S&P 500 index. It charges a very low expense ratio to investors. The
Taxes are paid on mutual fund earnings. There are 2 types of mutual fund fees: annual fund operating expenses and shareholder fees. Inflation can erode the value of investment returns over time.
Use this chart to take notes from the lesson. You may also research from outside sources, however, be sure to cite these in MLA format. You must choose
three different
investments, one from
each different risk level
(aggressive, moderate, and conservative).
Then respond to the questions in part two.
Part One—Review the Investment Types
Type of Investment
Explain what the investment is and how it works.
Explain the level of risk and potential return on investment.
Provide a real-world example of this investment.
Discuss how taxes, fees, and inflation could positively or negatively impact this investment and how.
Investment Choice #1
Certificate of Deposit (CD) - This is a safe way to save money, but it is hard to get out if needed. Liquidity is offered with a penalty. It also requires a minimum deposit to invest.
This is a conservative investment. It earns more money than a traditional savings account. The interest rate increases with the term of the investment. The risk is low, but the market price is high and the rate of return is low.
One example of a certificate of deposit is offered by the Bank of America. One of their products comes with a minimum balance of $10,000 with an option to choose terms between 7-35 months.
Any interest earned over $10 is usually taxable and must be reported to the IRS. This puts a dent in my overall return. I may get charged a fee if I want to take my money out before the term is over. As inflation rises, interest rates usually rise along with it. What I considered a good CD rate at the time of purchase may no longer be competitive in the future.
Investment Choice #2
A mutual fund is a share of ownership in a mixture of companies. It requires a minimum amount of money to invest.
A mutual fund can earn significantly more money, but there is also the risk to potentially lose more.
One of the most popular mutual funds available is the Vanguard S&P 500 index fund, which owns the 507 total stocks that are represented in the S&P 500 index. It charges a very low expense ratio to investors. The
Taxes are paid on mutual fund earnings. There are 2 types of mutual fund fees: annual fund operating expenses and shareholder fees. Inflation can erode the value of investment returns over time.
