Presentation on theme: "LO#2 Learning Objective # 2 Describe how safety, risk, income, growth and liquidity affect your investment decisions."— Presentation transcript:
1 LO#2Learning Objective # 2 Describe how safety, risk, income, growth and liquidity affect your investment decisions.
2 Factors Affect the Choice of Investments LO#2Factors Affect the Choice of InvestmentsSafety and RiskThe potential return on any investment should be directly related to the risk the investor assumesSafety in an investment means minimal risk of lossPotential return on any investment should be directly related to the risk the investor assumesRisk tolerance is the amount of psychological pain you’re willing to suffer for your investmentsRisk associated with investing;You could lose all or part of your principalThe purchasing power of your investment can decreaseYou may not receive the return you expected
3 Safety and Risk Safest investments include... Savings accounts LO#2Safety and RiskSafest investments include...Savings accountsGovernment Savings bondsCanadian Treasury BillsGuaranteed Investment Certificates (GICs)Term depositsCertain negotiable government and corporate bonds
4 LO#2Safety and RiskSpeculative Risk – a high risk investment made in the hope of earning a relatively large profit in a short timeHigher potential income investments include…Speculative StocksCertain bondsCommoditiesOptionsPrecious metals or stonesMutual fundsReal estateCollectibles
5 Components of the Risk Factor LO#2Components of the Risk FactorBusiness RiskBusiness will be less profitable then anticipatedInflation RiskReturn on investment will not keep up with inflationInterest Rate RiskChanges in the interest rates in the economyMarket RiskValues fluctuate because of behaviour of investors in marketplaceGlobal Investment RiskShould be evaluated like domestic investments
6 LO#2Investment IncomePurchase certain investments because you want a predictable source of incomeGIS’s, Savings Bonds and Treasury BillsOther sources of investment income are not as predictableMutual funds, real estate rental propertySpeculative investments such as precious metals, gems and collectibles offer little potential for regular income
7 Income Growth and Liquidity LO#2Income Growth and LiquidityInvestment GrowthInvestments will increase in valueCommon stockGrowth stocks reinvest retained earningsBonds, mutual funds and real estateInvestment LiquidityAbility to buy or sell an investment quickly without substantially affecting the investment’s value