Understanding Risk
What is the definition of risk in investing?
Exposure to the chance of injury or loss.
What type of investment is buying a lottery ticket?
Speculative Risk.
What is the main goal of diversification?
To reduce risk by investing in various assets.
What type of risk is associated with putting money under a mattress?
Low or no risk (but no return either).
What happens to returns when risk is low?
Returns are generally low
What is the risk level for growth stocks that increase in value faster than similar companies?
Moderate Risk.
Name three industries you could diversify your portfolio into
Energy, healthcare, and technology
If you invest in Disney and a small animation startup, what diversification rule are you following?
Diversify within an industry.
What does “high risk” potentially lead to in investments?
Big profits or significant losses
What is the best option for Jamie to grow money steadily: stocks, savings, or lottery tickets?
Savings account or stable stocks.
What is a common method of diversification within an industry?
Invest in both high-cap companies and startups within the same industry.
If you invest in energy, utilities, and retail industries, what rule are you following?
Diversify across industries.
Which type of risk involves fixed-income stocks paying steady dividends?
Conservative Risk
What kind of stock pays $4 per share per year and is considered fixed income?
Conservative Risk investment.
What financial products could you diversify between?
Common stocks, preferred stocks, and bonds.
What should Jamie consider before buying Chevron stock?
Industry trends, performance, and risk tolerance.
How does age or financial situation affect risk tolerance
It personalizes how much risk someone can handle
If you invest in a company with no prior knowledge about its performance, what risk level is this?
Speculative Risk.
How does diversification protect your portfolio?
It ensures your entire portfolio isn’t wiped out if one investment fails.
What are some factors influencing someone’s risk tolerance?
Age, salary, financial obligations, and family situation.