Personal finance investment compared worksheet

Money market An open ended mutual fund which invests only in money markets. These funds invest in short term debt obligations, such as treasury bills, CDs, and commercial paper. The goal is to maintain principal with modest dividends.
Is the risk of a money market low or high? Low
Is the return on a money market low or high? Low
What is the advantage of money market? •liquid, higher interest than savings•good for an emergency fund
What is the disadvantage of a money market? •doesn’t earn much money•limited to how many withdrawals you can take without penalty
Single Stocks Ownership in a company. Some of these pay dividends, or a share of the profit.
What is the risk of a single stock? High
What is the return of a single stock? High/low
Advantages of a single stock •easy to track only one company•can be “fun”
Disadvantages of a single stock •potential to lose all of your money•volatile (up/down)•requires research/work
Bonds A debt instrument where you loan the money. Some have coupon payments.
What is the risk of a bond? Lower than stocks, higher than mutual fund. Government bonds have the lowest risk
What is the return on a bond? An average of 8%
Advantages of a bond •Better rates than CD•safer
Disadvantages of bonds Stuck at whatever interest rate you are issued for a long time
Mutual fund Investors pool their money and fund managers invest the money into 90-200 individual companies
Risk of mutual funds Low
Return on mutual funds 10-12%
Advantages of mutual funds •diversity •run by portfolio manager
Disadvantages of a mutual fund •Long term investment•5 years before you see “reward”
Rental real estate Buy property, people pay you rent; makes banks “nervous”
Risk on rental real estate High
Return on rental real estate Depends on market and demand
Advantages of rental real estate Good long-term investment
Disadvantages of rental real estate •need a lot of cash•have good renters•least liquid type of investment
Annuities Savings account tied to an insurance company
Risk of annuities Low
Return of annuities Low return if fixed, higher return if variable
Advantages of annuities •variable annuities are invested in mutual funds growing tax-deferred•some guarantee your principal
Disadvantages of annuities •poor long term investment•low interest•similar to savings•not liquid
Real estate Buying a home and/or land
Risk of real estate Low
Return of real estate High if long term
Advantages of real estate •Great long term investment•money goes to something
Disadvantages of real estate Long term: 5 or more years

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