Homework Help: Investment???

Posted by Math Help on Tuesday, March 29, 2011 at 7:48pm.

Erik Johnson has just become a heir to $15 000. He is 23 years old, and he has graduated from a University business program. He works as an assistant managager of a retail store. He lives with his friend in a two bedroom apartment. He saves 5% of his monthly paycheck. Erik wants to save his inheritance in secure investments because he does not wish to lose out on his money. Though he also wants a good yield on his investment. The only main cost that Erik arranges is a 1 week vacation in the Carribean. What suggestion may possibly be given to Erik on how to invest his $15 000?

I don't get the whole idea of investments, Im a beginner on this stuff, and I just "dont" get it. Therefore, could someone please simplify all this for me to understand. I really don't get it.

Investment??? - Ms. Sue, Tuesday, March 29, 2011 at 7:58pm
When a person has extra cash, s/he wants to put it somewhere that will earn more money or pay a dividend, or at least be safe.

The biggest investment many people make is to buy a house. Hopefully, the house will increase in value and the owner will make a profit when they sell it.

Other investments include:

government bonds that are safe and play a small interest

certificates of deposit, sold at banks, that are also safe and earn a little interest

stocks (part ownership) in businesses. These are risky, but some pay good dividends and have the potential to increase in value.
Investment??? - Math Help, Tuesday, March 29, 2011 at 8:30pm
Im kind of getting it. The suggestion I would give to Erik on how to invest his $15 000 would be to get a certificate of deposit. What about like get a GIC or some other saving account? Stock markets have ups and downs, so that would be a bit risky.
What else?
Investment??? - Math Help, Tuesday, March 29, 2011 at 8:35pm
Could he invest in a real estate?

Wouldnt the Bank account be a safest way to invest your money into? There are some interests but less risk. You cant lose your money on bank accounts. Bonds are another way to invest your money into.

Could I get more information please
Investment??? - Ms. Sue, Tuesday, March 29, 2011 at 8:46pm
Savings accounts are paying almost nothing in interest.

I'd advise Erik to invest in federal, state, or municipal bonds. The interest on them is better than a savings account and he won't have to pay income taxes on the interest. Most of these bonds are almost as safe as a savings account.

However, since Erik is only 23, I suggest he put some of the money into bonds, and some into some blue-chip stocks that pay good dividends. These are low risk, especially if he doesn't need this money for a few years.

After the recent debacle in real estate where the prices of most land and houses plummeted, I'd stay away from real estate. Buying a house for himself is emotionally satisfying, but not necessarily a good economic investment.

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