Understanding Risk and Reward in Investing

The video explores the relationship between risk and reward in investing. It begins with an introduction to these concepts, followed by examples of different investment options: savings accounts, lending to reputable companies, lending to individuals, stock market investments, and high-risk family investments. Each option is analyzed for its potential risks and rewards, illustrating the general principle that higher risk often correlates with higher potential reward. The video concludes by emphasizing the importance of understanding this relationship when making investment decisions.

What is the primary benefit of putting money in a savings account?

• High interest rates

• Zero risk

• Quick access to funds

• Tax benefits

What does FDIC insurance guarantee in a savings account?

• Protection against bank failure

• High interest rates

• Unlimited withdrawals

• Tax-free interest

When lending money to a reputable company, what is the main risk involved?

• The company might relocate

• The company might increase its interest rates

• The company might change its business model

• The company might default on the loan

What is a potential risk when lending money to an individual like a doctor?

• The individual might not repay the loan

• The individual might invest in stocks

• The individual might move to another country

• The individual might change careers

What is the expected average annual return when investing in the stock market?

• 12%

• 10%

• 8%

• 5%

What is the main risk associated with stock market investments?

• Volatility

• Inflation

• Currency fluctuations

• Interest rate changes

Why might someone choose to invest in the stock market despite its risks?

• Guaranteed returns

• Potential for higher long-term gains

• No risk of loss

• Fixed interest rates

What is a potential reward of investing in a high-risk venture like a brother-in-law's business?

• Immediate liquidity

• Tax deductions

• High stake in a successful business

• Guaranteed returns

What is a significant risk of investing in a family member's business?

• Currency risk

• High transaction fees

• Regulatory issues

• Loss of family relationships

What is a common characteristic of high-risk investments?

• High potential rewards

• Guaranteed safety

• Stable income

• Low potential returns