4.3 Investment Risk

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4.3 Investment Risk


Pages:
26
School:
University of Texas at Austin
Course:
Fin 320f - Foundations of Finance
Foundations of Finance Documents

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You have to risk to get Bruce Springsteen US rock musician (1949 - ) Foundations of Finance 4.3 Investment Risk  Inflation (purchasing power) risk  Firm-specific (business, financial) risk  Economic (market) risk  Interest rate (maturity) risk  Liquidity risk 2011 - 2023 © H Toprac 3 Types of investment risks For near-term goals (0 – 3 years) • Savings accounts • Money market accounts • Certificates of Deposit (CDs) For intermediate-term goals (3 – 10 years) • Mutual funds that own short- to intermediate- term bonds (up to 10 years) • Mutual funds that own US large cap stocks 2011 - 2023 © H Toprac 24 Matching time horizons  For long-term goals (10 years or more) • Mutual funds that own:  US large cap stocks  US small cap stocks  Foreign large cap stocks  Emerging markets stocks  Real estate stocks • Real estate 2011 - 2023 © H Toprac 25 Matching time horizons (cont’d) 2011 - 2023 © H Toprac 26 Sample Long-Term Portfolio 40% 15% 15% 5% 5% 20% US Large Cap Stocks US Small Cap Stocks Foreign Large Cap Stocks Emerging Markets Stocks Real Estate Stock (REITS) Bonds



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