You can’t afford to take unnecessary risk. If your human capital is low, you won’t be able to rely on employment income to compensate for potential losses. If your portfolio loses money in the short-term, you have time to recover your losses and the ability to generate more income. If your human capital is high, you can afford to take more risk. Human capital affects the amount of risk you can take when investing. + read full definition, which is their ability to generate income from work. Investors also have human capital Human capital Human capital is someone’s ability to generate income from work. Your investment portfolio is only one part of your wealth. Factors that can affect time horizon Human capital This doesn’t mean that stocks are not risky over the long-term, but for long-term investors, stocks are more likely to provide higher returns. Volatility can be measured using standard deviation and beta. A stock price that changes quickly and by a lot is more volatile. Longer-term investors are in a position to allocate a larger portion of their portfolio to higher-risk investments like stocks than shorter-term investors because a longer time horizon is associated with lower volatility Volatility The rate at which the price of a security increases or decreases for a given set of returns. + read full definition changed historically in relation to time horizon. + read full definition of Canadian Equities Equities Another word for investments in the stock market. May include stocks, bonds and mutual funds. Use this chart to see how the average annual return and risk of loss on a diversified portfolio Portfolio All the different investments that an individual or organization holds. Stocks have a higher potential return than cash and bonds over the long term, and are better for investors saving for long-term goals. People saving for a short-term goal could end up with less money than they originally invested. In comparison, stocks can be very risky for the short-term investor since their value may change frequently. Learn how not taking enough risk can affect your ability to achieve your goals. + read full definition, or be enough to meet the long-term goal. In most cases, inflation is measured by the Consumer Price Index. This means a dollar can buy fewer goods over time. The low return on short-term investments may not keep pace with inflation Inflation A rise in the cost of goods and services over a set period of time. + read full definition is long, for example, a person saving for retirement. In most cases, the shorter the horizon, the less risk you will want to take with your money. Based on when you believe you will need your money back. However, they can be risky for an investor whose investment horizon Investment horizon How long you expect to hold onto your investment. + read full definition bonds carry little risk for an investor whose time horizon is short, for example, a person saving for a vacation in 2 years. Also, the period of time that an investment pays a set rate of interest. Investments like cash and short- term Term The period of time that a contract covers. The time horizon you choose and the risk of an investment are related. + read full definition is the length of time you expect to hold an investment Investment An item of value you buy to get income or to grow in value. This may be a brief period of time or span as long as decades, depending on your financial goals. Your time horizon Time horizon The length of time that you plan to hold an investment before you sell it.
0 Comments
Leave a Reply. |