Having just returned from the war in Afghanistan, David has $25,000 in his savings account. His girlfriend suggests that he talk
with an investment advisor and let his money "make more money." David has his eye on a new Ford truck, but realistically he knows that his old Jeep Cherokee will probably last another four years, at which time he will definitely need this money as a down payment on the purchase of something new. He knows he may have other needs as well. David should buy high-growth stock with his funds because even though they are risky, they also have the greatest potential of bringing in a better return on his investment. True False
First it's not sound investment advice to put all his savings into an investment because as the narrative rightly points out, he may have other needs.
Second, high growth stock are also
high risk
they only pay in the long term only if the company is successful because dividends are re-invested which is one of the reasons the companies grow quickly.
Although they are high risk, they also have great advantages such as:
High growth rate: this means if all goes well David will enjoy a good return on his investment;
It's also a way to protect his money from erosion by inflation
What can David do?
Subject to the advise of a professional investment professional
David needs to take into consideration his immediate needs, set aside some funds to take care of that.
Invest the balance into a mix of high growth rate stock which are high yielding but risky and low growth rate but secure investment like government bonds.
Start a small business by the side or get a job in the interim as he continues with his new life.
