Topic 1 Risk and Reward

Part 1 - Risk Strategy

Read each profile and complete the table according to the information provided. You may use the risk assessment pyramid to help you.

Profile One

Juan is 27 and single. He has a savings account. His other investments include two mutual funds and collectible baseball cards. Seventy percent of the money in these investments is in a growth mutual fund, and ten percent of the money is in the collectibles.

Profile Two

Kavya is 32 and married with no children. She has a U.S. savings bond. The remainder of her investments include equal amounts of money invested in a money market mutual fund, preferred stock, and common stock.

Scenario Three

James is 44 and married with two children. He has a 5-year Certificate of Deposit. His other investments include real estate (an apartment building) and corporate bonds.

Juan

Kavya

James

Whose portfolio has the lowest risk investments?

Whose portfolio has the potential for the highest rate of return?

What is each person's highest risk investment?

What is each person's lowest risk investment?

Who has the highest risk capacity given their current situation?

Do you think each person is following the correct risk strategy for their situation? If not, what should they do to correct this?