ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Lean toward high-risk investments with high-return potential
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Keep at least 75% cash or money market funds for immediate availability
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Own only one stock
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Diversify into savings accounts and U.S. savings bonds
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Detailed explanation-1: -Answer and Explanation: An investor with a long term investment horizon should tilt his portfolio in favor of stocks, which are high risk investments with high return potential.
Detailed explanation-2: -The long-term investment horizon is for investments that one expects to hold for ten or twenty years, or even longer. The most common long-term investments are retirement savings. Long-term investors are typically willing to take greater risks, in exchange for greater rewards.
Detailed explanation-3: -High-risk investments may offer the chance of higher returns than other investments might produce, but they put your money at higher risk. This means that if things go well, high-risk investments can produce high returns. But if things go badly, you could lose all of the money you invested.
Detailed explanation-4: -Investment time horizon refers to the amount of time an investment will be held before the money is needed back. Time horizons drive the type of investment portfolio you assemble. The longer a time horizon, the riskier a portfolio will tend to be.
Detailed explanation-5: -Over many decades, the investment that has provided the highest average rate of return has been stocks. But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments.