Key Terms

Her cousin advised her to, “Buy stock in a technology company. Tech companies are always in the news.”

Janella told her, “Put it in a savings account. It’ll earn compound interest over time, so you’ll have more than what you started with.”

1. Who gave the best advice? Why?

2. Who gave the riskiest advice? Why?

Let’s discuss a few new key terms and determine how they may impact Julia’s decision for having her money work for her.

Investment Risk:

The chance of losing all or part of the value of an investment.

Risk Tolerance:

The amount of risk that an investor is comfortable taking or the degree of uncertainty that an investor is able to handle.

An individuals’ risk tolerance is based on a number of factors including age, fnancial stability and amount of time before invested funds are needed for other purposes.

KEY TERMS

Interest:

The cost of borrowing money. In other words, you are paying a certain amount for the use of borrowing money. Interest is expressed as a rate, such as 3%. When you lend or invest money, a higher interest rate is better because it means you earn more. When you borrow money, a lower interest rate is better because it means you pay less.

Simple Interest

A set rate on the original amount lent to the borrower. The borrower will have to pay this interest.

Example: If you borrow £1,000 (Principal) with 10% interest annually, the interest owed will be £100 (£1,000 x 10% or .10 = £100). If you’ve paid nothing on the loan after one year you will owe £1,100.