11.2 Review Investment Risks and Types

What is financial risk in investing?

• The potential for an investment to increase in value over time.

• The risk of losing some or all of your investment because the business or government you invested in may not be able to return your money.

• The chance of receiving dividends from a stock investment.

• The likelihood of market fluctuations affecting the value of your investment.

What is the relationship between risk and return in investments?

• High-risk investments guarantee the highest returns with no potential for loss.

• Medium-risk investments are the safest with the highest potential for return.

• High-risk investments have the potential for the highest returns but also the greatest potential of losing value.

• Low-risk investments always provide the highest rate of return.

Name some high-risk investments.

• Options

• Futures

• Bonds

• Real Estate

What are some examples of medium-risk investments?

• Government bonds

• Savings accounts

• Stocks, mutual funds, corporate bonds, and real estate.

• Cryptocurrency

What is an ETF?

• A type of mutual fund that is only available for purchase at the end of the trading day.

• A basket of assets like stocks and bonds traded on exchanges during market hours.

• A government bond that is traded on the stock market.

• A type of insurance policy that invests in the stock market.

What is liquidity risk?

• The risk associated with how easily you can access your money from an investment.

• The risk of losing money due to market fluctuations.

• The risk of not being able to sell an asset at its fair market value.

• The risk of default on a loan or investment.

List some low-risk investments.

• Stocks in emerging markets

• Certificates of deposit (CDs)

• Real estate investment trusts (REITs)

• Cryptocurrency

How does market price risk affect investments?

• The price of investments like stocks and mutual funds can go up and down due to supply and demand and other factors beyond your control.

• Market price risk has no effect on investments.

• Investments are guaranteed to increase in value regardless of market conditions.

• Market price risk only affects real estate investments.

What is the role of a trustee in a trust?

• A trustee manages the trust assets and makes investment decisions for the beneficiaries.

• A trustee legally holds the assets for a designated period through a trust, eventually transferring them to the beneficiary.

• A trustee is responsible for creating the trust document and ensuring it is legally binding.

• A trustee only oversees the distribution of assets after the trust has been dissolved.

What is an annuity?

• A type of insurance policy that pays out a lump sum upon death.

• A contract between you and an issuer where you pay money to the issuer, and the issuer pays back the principal and earnings.

• A savings account that offers higher interest rates than regular accounts.

• A loan agreement where the borrower pays back the lender in installments.