Don't Put all your Eggs in One Basket 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 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? Would you bet $100 on a coin flip if the deal were that you keep your $100 and receive an additional $100 for heads? Would you bet $100 on a coin flip if the deal were that you keep your $100 and receive an additional $400 for heads?

Diversification and Risk Forms of Saving and Investing: · Checking accounts ·Savings accounts ·Certificates of Deposit ·Bonds ·Mutual Funds ·Stocks ·Real Estate ·Collectibles ·Commodities

Diversification and Risk Checking account – an account at a bank against which checks can be drawn by the account depositor Savings account – a bank account that earns interest Certificates of Deposit – a certificate issued by a bank to a person depositing money for a specified length of time Bonds – An investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate Forms of Saving and Investing

Diversification and Risk Forms of Saving and Investing Mutual Fund – made up of a pool of funds collected from many investors for the purpose of investing in stocks, bonds, and other assets. Investors own small amounts of many different assets. Stocks – a type of security that signifies ownership in a corporation and represents a claim on part of the corporations assets and earnings. Real Estate - property consisting of land and buildings Collectibles – an item valued and sought by collectors Commodities – a raw material or primary agricultural product that can be bought and sold, such as copper or coffee

Diversification and Risk The Pyramid of Risks and Reward Highest Risk - Highest Potential Return or Loss 4. government bonds 3. certificates of deposit 5. corporate bonds 6. mutual funds 7. stocks 8. real estate 9. collectibles 1. cash and checking accounts 2. savings accounts 10. commodities Lowest Risk - Lowest Potential Return or Loss

Diversification and Risk Using the Pyramid of Risks and Reward, explain why you think Commodities, Collectibles, and Real Estate have the highest potential return or loss. Using the Pyramid of Risks and Reward, explain why checking accounts, savings accounts and Certificate of Deposit have the lowest potential return or loss.

Diversification and Risk Investment Situation You received $1,000 in gift money for your 8th-grade graduation. You have no need for this money anytime soon. Identify which form(s) of Saving and Investing you think would be the most appropriate for this situation. Explain your answer.

Diversification and Risk Investment Situation You have $18,000 that you'll need for college next year. Identify which form(s) of Saving and Investing you think would be the most appropriate for this situation. Explain your answer.

Diversification and Risk Investment Situation 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. Identify which form(s) of Saving and Investing you think would be the most appropriate for this situation. Explain your answer.