Question

• If you had $100,000 of liquid assets, in what type(s) of accounts would you deposit/invest your money?
• Explain your decisions. (Please respond with regards to risk and return considerations.)

Answer 1

Before making any investment decision it is imperative that we evaluate the risk and returns associated with our investment. It is imperative to know what is our risk appetite basis which we can have our return expectations.

For Instance, investments in Government Bonds or Securities will provide us with a relatively lower return but the same return is fixed / guaranteed and backed by the Government translating to lower returns but the same being risk free.

On the other hand, if one were to have a higher risk appetite, one could buy the stock of Microsoft, Amazon, Google or Facebook. These instruments would provide higher returns compared to Government bonds but at the same time the price / return on these instruments are influenced by market conditions.

So in the given case having discussed the parameters above, taking an aggressive risk stand $100,000 of liquid assets could be invested as follows:

$100,000 spread across stocks of Facebook, Amazon, Netflix and Google

Moderate Risk Stand

$50,000 Government Bonds

$50,000 spread across equity stocks as mentioned above

Conservative Risk Stand

$100,000 of Government Bonds

Hope this helps.