Question

.You recently came into a large sum of cash. After putting a portion towards paying off existing debts, you have decided to put the rest into investments to help secure your personal financial future. Please discuss at least three options. For each option, you should identify the option, explain how it works, and give your reason for selecting it.

Answer 1

Answer:

Depending on your age, you can diversify your investment in 3 ways:

1. Stocks: on the long term this is the best investment possible since it yields the highest returns and it is fairly safe, of course depending on which type of corporations you decide to invest. You buy stocks from corporations that trade in public markets and earn money by receiving dividends and is the stock price increases.
2. Corporate bonds: they are a safer investment but yields lower returns than stocks. You buy bonds issued by corporations that generally pay annual or semiannual coupons.
3. US Treasuries: they are the safest investment, but also the one that yields the lowest returns. Investing in government bonds is very safe, since the government should be able to pay its debt since it owns the machine that prints money. The problem with this investment is that yields tend to be very low and if you compare them to inflation, they might yield negative real returns.