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Risk Money Places Include ...
Mutal Funds, Commodities, Real
Estate, Stocks, and Bonds
A safe money
place is one where it is very, very unlikely that you will
lose interest and credited gains – CDs and fixed annuities
would be examples. A risk money place is one where you could
lose principal and gains due to circumstances beyond your
control – a growth mutual fund is a risk money place.
A safe money place is one where
your principal is protected from loss as long as you follow
the initial guidelines, and if you do decide to take your
money and leave, you know pretty much what leaving early
will cost. A risk money place is one where if you decide to
take your money you don’t know what you will get back. It
could be more than you put in - risk money places offer the
potential for
much higher returns than safe money places – but it could
also be less than you started with or even zero.
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Outside Circumstances
Example: Historically, real estate in America has generally
been a good investment and gone up in value. If you buy a
house today could you sell it without a loss tomorrow?
Maybe. Maybe not. Home prices are affected by mortgage
rates, the local economy, changes in zoning and many other
elements, all of which are outside the control of the
homeowner. Real estate is a risk money place because
principal can be lost due to events beyond your control.
There Is Nothing Wrong With A Risk Money
Place
Risk money places are expected to produce higher returns
than safe money places to justify the added risk of loss,
and over time many risk money places have produced
significantly higher returns than the safe money places
discussed on this site. But the focus of this site is safe
money.
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Why Aren’t Treasury Bonds Listed
As
A Safe Money Place?
U.S. Treasury Bonds and Bills are direct government
obligations and if you hold them to maturity you
will get the stated value. What do you get back
if you need to sell the bonds before maturity? There
is no way of knowing, and this is why they are not
included as a safe money place.
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A Tale Of The First Stock Exchange
One of the first stock exchanges was founded in Holland in
the 17th century. A group of Dutch merchants would invest in
the cargo of a ship. If the ship survived the storms and the
pirates and sold the cargo at a profit, the merchants would
receive their share of the riches. If a merchant needed
money before the cargo was sold they would offer their share
for sale to others and the new owner would then be entitled
to any profits (or could lose their investment if the ship
sank).
The Dutch brought this financial medium
to the New World when they settled New Amsterdam and they
conducted their share exchanges near the fencing which
contained the pig sty. The street with the fencing became
known as Wall Street, and over two hundred years ago under a
Buttonwood tree on Wall Street, in a city renamed New York,
the New York Stock Exchange was founded. The origins of the
site of the Exchange gave rise to a Wall Street saying that
“Bulls may make money on Wall Street and Bears may make
money on Wall Street, but hogs always get slaughtered.”
In the final analysis, stock prices and
returns are based on actual earnings over time. If the
earnings of a company grows over time the price of the
company’s shares will grow. If you believe that the nation’s
economy will continue to expand, stock indexes will increase
in value.
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