{"id":496,"date":"2023-12-19T19:21:13","date_gmt":"2023-12-19T19:21:13","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accinvestments\/?post_type=chapter&#038;p=496"},"modified":"2023-12-19T19:21:14","modified_gmt":"2023-12-19T19:21:14","slug":"1-3-an-overview-of-the-investment-universe","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accinvestments\/chapter\/1-3-an-overview-of-the-investment-universe\/","title":{"raw":"1.3: An Overview of the Investment Universe","rendered":"1.3: An Overview of the Investment Universe"},"content":{"raw":"<p class=\"lt-biz-79464\"><iframe id=\"iFrameResizer0\" title=\"Chapter 01 - Slides 15-34 - Overview of Investment Types\" src=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.html\" width=\"640\" height=\"480\" allowfullscreen=\"allowfullscreen\" data-mce-fragment=\"1\"><\/iframe><\/p>\r\n<p class=\"lt-biz-79464\"><a class=\"inline_disabled\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.html\" target=\"_blank\" rel=\"noopener\">Video<\/a>\u00a0-\u00a0<a class=\"inline_disabled\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.mp3\" target=\"_blank\" rel=\"noopener\">Audio<\/a>\u00a0-\u00a0<a class=\"inline_disabled\" title=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_YouTube_15_34.html\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_YouTube_15_34.html\" target=\"_blank\" rel=\"noopener\">YouTube<\/a><\/p>\r\n<p class=\"lt-biz-79464\">Let\u2019s become casually acquainted with the major<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">investment\u00a0asset classes. We will dispense with all the tedious details. Concern yourself with just what we cover here. Don\u2019t fret. There will be plenty of time later on to learn the many intricacies of these investments. As we introduce each\u00a0investment\u00a0asset class, we will also touch on the\u00a0risk and return that we can expect from each.<\/div>\r\n<div id=\"section_1\" class=\"mt-section\">\r\n<h2 class=\"lt-biz-79464 editable\">Equity Securities, Also Known as Common Stocks or Stocks<\/h2>\r\n<p class=\"lt-biz-79464\">In the\u00a0investment\u00a0world,\u00a0equity\u00a0refers to ownership.\u00a0Equity\u00a0securities, also known as\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/c\/commonstock.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>common stocks<\/u><\/a>, represent partial ownership in corporations. Most people just use the term\u00a0<em>stocks<\/em>. The term\u00a0<em>stocks<\/em>\u00a0is a bit unfortunate. Your Humble Author prefers to refer to them as companies or better yet, businesses. You are investing in a business. Why invest in a business? When all goes well, businesses grow and earn money. This creates two great opportunities for investors. When the business grows, your partial ownership of the business should also grow. That\u2019s\u00a0capital appreciation, also known as\u00a0capital\u00a0gains. Also, the business can optionally distribute earnings to you in the form of dividends. (You can think of dividends like<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">interest\u00a0payments even though they are legally two different forms of payments.) We invest in businesses for potential\u00a0capital appreciation\u00a0and potential dividends. We invest for<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">growth and income. Note that we said, \u201cWhen all goes well.\u201d Obviously, all doesn\u2019t always go well in this wicked world of ours, does it? Both<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">capital appreciation\u00a0and dividends are optional and are not guaranteed. Therefore, we find that stocks are high-risk\u00a0investments. We say that stocks are\u00a0<em>volatile<\/em>. Stocks exhibit high<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">volatility.\u00a0Volatility\u00a0is a euphemism for, \u201cI lost a whole lotta\u2019 money!\u201d You might ask someone how that\u00a0stock\u00a0he or she bought is doing and they may sheepishly say, \u201cOh, it\u2019s been volatile.\u201d That means they bought it for $11.88 and sold it for 30\u00a2. Do you know anyone who bought a\u00a0stock\u00a0for $11.88 and sold it for 30\u00a2? I do. I have known him all my life. He\u2019s kind of a goofy guy who teaches Introduction to Investments at Southwestern Community College in Chula Vista \u2026 Look, it was a really good company and they were going to strike it rich by making artificial blood and there would be no more need for blood banks or\u00a0calls to the public to donate blood and\u00a0well, um, it just didn\u2019t turn out the way it was supposed to. Ahem. Stocks are volatile. Stocks are risky. In fact, to paraphrase\u00a0<a class=\"link-https\" href=\"https:\/\/en.wikipedia.org\/wiki\/Burton_Malkiel\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Professor Burton Malkiel<\/u><\/a>\u00a0from his famous book,\u00a0<a class=\"link-https\" href=\"https:\/\/en.wikipedia.org\/wiki\/A_Random_Walk_Down_Wall_Street\" target=\"_blank\" rel=\"external noopener nofollow\"><u><em>A Random Walk Down Wall Street<\/em><\/u><\/a>\u00a0discussed in our\u00a0<a class=\"link-https\" href=\"https:\/\/docs.google.com\/document\/d\/1UMe6PZ9-dRhlRQoSBPN2hTnR8QIgWFb7Fxv0EW1ZXcY\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Bibliography<\/u><\/a>, the 2008 definition of stocks is, \u201cStocks are\u00a0equity investment instruments designed to lose value.\u201d However, if we can learn to stomach the\u00a0volatility\u00a0that comes along with\u00a0stock\u00a0investing, history tells us that we can reasonably expect to receive some of the best\u00a0long-term returns available from the investment\u00a0world. We like to say that stocks have an\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/a\/aar.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>average annual return<\/u><\/a>\u00a0of 8%, 9%, or even 10% over the long term. The problem is that they almost never return 8% or 9% or 10% in any given year. The returns vary substantially, up and down. For this reason, when we want to invest in stocks, we must think long term. We must give our\u00a0stock investment\u00a0enough time to reward us with 8% or 9% or 10% annually. As Warren Buffett is quoted as saying, \u201cIf you aren\u2019t thinking about owning a\u00a0stock\u00a0for ten years, don\u2019t even think about owning it for ten minutes.\u201d Stocks are\u00a0long-term\u00a0investments.<\/div>\r\n<p class=\"lt-biz-79464\"><em>Disclaimers:<\/em>\u00a0The real estate fans are most likely jumping up and down and screaming that real estate has given investors better returns than stocks. Calm down and please accept my apologies. In one sense, they are correct. In another, they are not. The problem is how we measure\u00a0investment\u00a0returns and how different investments are typically purchased. We will deal with this thorny issue later on. Some\u00a0stock\u00a0fans might also be screaming saying that 8%, 9%, 10% is too low. Stocks have done better. This is actually true. Stocks as a whole have done better than 10% over the last 100 years and some stocks have done a whole lot better. However, some have done a whole lot worse. We prefer to keep new investors\u2019 expectations muted, especially since there are long periods of time where stocks have done a whole lot worse than 8%, 9%, or 10%. Finally, a scant few stocks can be considered moderate<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">risk\u00a0and moderate return vehicles. In the presentation for the previous section \u2012 You have watched it already, right? \u2012 we discussed Nestl\u00e9, the world\u2019s largest food company. Companies such as Nestl\u00e9 can be categorized as moderate\u00a0risk and moderate return investments.<\/div>\r\n<\/div>\r\n<div id=\"section_2\" class=\"mt-section\">\r\n<h2 class=\"lt-biz-79464 editable\">\u00a0Fixed-Income Securities, Also Known as Bonds<\/h2>\r\n<p class=\"lt-biz-79464\">Fixed-income\u00a0securities are typically referred to as bonds.\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/b\/bond.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Bonds<\/u><\/a>\u00a0are\u00a0long-term\u00a0loans to corporations, state and local municipalities, and the Federal government. When you invest in a<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">bond, you get to play the part of a bank. You lend your money to one of these entities. In return, they promise to repay the\u00a0principal\u00a0\u2012 the money you lent them \u2012 and along the way, they will pay you\u00a0interest. Most people pay their debts to the banks. Likewise, most corporations and state and local governments also pay their debts. The United States Treasury has always paid its debts. Hence, we find that bonds are far less risky than stocks. And subsequently, we find the long term return from bonds is far less than stocks. (Are you starting to see a pattern here, Dear Students?) What can we expect from bonds? Investors used to be accustomed to receiving 3% to 8% in\u00a0interest\u00a0from their\u00a0bond\u00a0investments. During the years after the<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Global\u00a0Financial crisis, many bonds paid 1% to 3%. Greater than 4% is unusual. In 2022,\u00a0interest\u00a0rates rose and investors could again find attractive\u00a0interest rates from many bonds. Remember that bonds are securities and\u00a0bond\u00a0prices change in the marketplace every day just like stocks. At first, it may seem a bit odd that the value of a loan could vary. Yet there are times when the prices of bonds can fall, too. However, as mentioned though, the\u00a0volatility\u00a0with regard to bonds is much less than what stocks exhibit. To repeat, the fall will typically be far less than stocks but it can still sting. For example, when some stocks lost well over 50% during the\u00a0Global\u00a0Financial Crisis of the late 2000\u2019s, many bonds lost between 10% and 20%. A similar decline in bonds was experienced in 2022. We again paraphrase Professor Malkiel by saying the 2008 definition of bonds is, \u201cBonds are fixed-rate\u00a0investment instruments designed to lose value.\u201d<\/div>\r\n<\/div>\r\n<div id=\"section_3\" class=\"mt-section\">\r\n<h2 class=\"lt-biz-79464 editable\">Short-Term Investments, Also Known as \u201cCash\u201d \u2012 A Place to Park Your Money<\/h2>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Short-term<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/s\/shorterminvestments.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0investments<\/u><\/a>\u00a0are often referred to as \u201ccash.\u201d We usually see cash put in quotes because these investments are not dollar bills that we stuff under our mattresses. Many of these\u00a0short-term\u00a0instruments are tradable securities so again, their prices do change. However, they are vehicles that are typically guaranteed by some governmental organization. And if they are not guaranteed, they are pretty darned close. If you have been paying attention, you should be able to guess correctly that since these choices have very low\u00a0risk, these investments will not give us much reward. Therefore, we say that\u00a0short-term\u00a0investments are a place to park your money. You aren\u2019t going to lose your money, but you also aren\u2019t going to make much money. That is why we call them\u00a0short-term\u00a0investments. If we need the money in the\u00a0short-term, we don\u2019t want to place our funds into the\u00a0stock\u00a0market. Even the<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">bond\u00a0market might be too risky for us. We need to park our money into a\u00a0short-term investment\u00a0so that in three, six, or nine months, we know it will not have lost 10%, 20%, or more of its value. At the end of this introductory chapter, we will cover\u00a0short-term\u00a0investments in detail. Our 2008 Definition? \u201cShort-term investments are instruments designed to accept what remains of investors\u2019 money after they have given up on stocks and bonds.\u201d<\/div>\r\n<\/div>\r\n<div id=\"section_4\" class=\"mt-section\"><span id=\"Mutual_Funds.2C_Also_Known_as_Investment_Companies_.E2.80.92_Investments_for_the_Masses\"><\/span>\r\n<h2 class=\"lt-biz-79464 editable\">Mutual Funds, Also Known as Investment Companies \u2012 Investments for the Masses<\/h2>\r\n<p class=\"lt-biz-79464\">Unless you live on a deserted island or somehow effectively have shut out all forms of mass media, you no doubt have been subjected to advertisements for\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/m\/mutualfund.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>mutual funds<\/u><\/a>. There is a valid reason for this. Mutual funds are investments for the masses. Just as most of us workaday individuals don\u2019t build our own cars, make our own shoes, or grow our own food, most people will not dedicate the time to learn how to invest. (This is most unfortunate. Everyone should take Introduction to Investments, not that I\u2019m biased, of course.) And education is just the beginning! They then need to spend many hours doing the necessary research to identify, choose, and monitor their individual\u00a0stock\u00a0and\u00a0bond investments. You, Dear Readers, are going to make this a fun and profitable labor of love. Many other people are either not interested, too nervous or frightened, or just simply too busy living their lives. This is where mutual funds come into the picture. The legal term for a\u00a0mutual fund\u00a0is an\u00a0<u><\/u>investment<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/i\/investmentcompany.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0company<\/u><\/a>. Now doesn\u2019t that name make more sense? The term\u00a0investment\u00a0company tells you what the<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">mutual fund\u00a0does for you. Do you need a car? You go to a car company. You need shoes? You go to a shoe company. You need investments? You go to an\u00a0investment\u00a0company! Mutual funds \/\u00a0investment\u00a0companies are companies that pool investors\u2019 money and invest in a diversified portfolio of securities, typically stocks, bonds, or a combination of stocks and bonds. Investors receive two valuable benefits,\u00a0<u><\/u>diversification<u><\/u>\u00a0and\u00a0<u><\/u>professional money management<u><\/u>. Because of the size of the typical\u00a0mutual fund, they are not limited to 10 or 20 stocks or bonds as is common with an individual investor. More than 20 stocks and an individual investor often becomes overwhelmed with the necessary research to simply keep track of their holdings. A typical\u00a0mutual fund will hold 100 or 200 securities. Some hold many more.<\/div>\r\n<p class=\"lt-biz-79464\">So how does the\u00a0mutual fund\u00a0keep from becoming overwhelmed? The\u00a0mutual fund\u00a0is managed by professional money managers, the second major benefit of investing in mutual funds. The\u00a0mutual fund\u00a0portfolio managers are highly skilled and very well-paid professionals whose day-to-day job is to identify, choose, and then monitor the diversified portfolio of investments in the\u00a0mutual fund. As we shall see, it is not an easy job and there is some controversy over whether these individuals are actually worth the high salaries they demand. We will explore this debate in our chapter dedicated to mutual funds.<\/p>\r\n<p class=\"lt-biz-79464\">Because of these two valuable benefits \u2012\u00a0diversification\u00a0and\u00a0professional money management\u00a0\u2012 mutual funds have become extremely popular. Adding to their popularity are the countless employer-sponsored retirement programs such as\u00a0401(k)\u00a0and\u00a0403(b)\u00a0plans. Mutual funds are the dominant\u00a0investment\u00a0choice for employer-sponsored retirement programs. Almost half of all American households own mutual funds. In our next chapter, because of their importance as investments for the masses, we will spend a great deal of time on mutual funds.<\/p>\r\n<p class=\"lt-biz-79464\"><img class=\"internal\" src=\"https:\/\/biz.libretexts.org\/@api\/deki\/files\/37787\/Chap02_Mutual_Funds_Explained__Ferran_Massaged.png?revision=1&amp;size=bestfit&amp;width=711&amp;height=521\" alt=\"Mutual Funds, also known as Investment Companies: Investments for the Masses\" width=\"711px\" height=\"521px\" \/><\/p>\r\n<p class=\"lt-biz-79464\"><em>Mutual Funds: Investments for the Masses,\u00a0<\/em><em>Graphics courtesy of Ferran Capo:\u00a0<\/em><a class=\"external\" href=\"http:\/\/www.ferrancapo.com\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u><em>StudioCapo<\/em><\/u><\/a><\/p>\r\n<p class=\"lt-biz-79464\">What kinds of risks and returns can we expect from mutual funds? Mutual funds will exhibit risks and returns similar to their underlying investments. There are many mutual funds that fall into the\u00a0short-term investment\u00a0category. These are called money market funds. Low\u00a0risk, low return. However, most mutual funds are dedicated to stocks or bonds or both and they will exhibit the same\u00a0risk versus return characteristics of stocks and bonds. Hence, what is their 2008 definition? \u201cYeah, them too.\u201d 2008 was a very difficult year for everyone.<\/p>\r\n\r\n<\/div>\r\n<div id=\"section_5\" class=\"mt-section\"><span id=\"Hybrid_Securities_.E2.80.93_Preferred_Stocks_and_Convertible_Securities\"><\/span>\r\n<h2 class=\"lt-biz-79464 editable\">Hybrid Securities \u2013 Preferred Stocks and Convertible Securities<\/h2>\r\n<p class=\"lt-biz-79464\"><a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/h\/hybridsecurity.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Hybrid securities<\/u><\/a>\u00a0are designed to offer the stability of fixed-income\u00a0investments (bonds) with the opportunity for\u00a0capital growth\u00a0of\u00a0equity investments (stocks). With these investments, we are trying to get the best of both worlds. The pesky fly in the ointment with this approach is that along with the advantages of both stocks and bonds, you also get the disadvantages of both stocks and bonds. So, we get the best of both worlds \u2026 and we get the worst of both worlds.<\/p>\r\n<p class=\"lt-biz-79464\">Other annoying flies buzzing around the\u00a0hybrid security\u00a0worlds are the names of the major types of hybrid securities. The two major examples of hybrid investments are<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">preferred stock\u00a0and convertible securities. Don\u2019t they sound enticing? Wouldn\u2019t you really rather have \u201cpreferred stock\u201d instead of just \u201ccommon\u00a0stock?\u201d Well, actually, no, you and I and most individual investors don\u2019t really want\u00a0preferred stock. They are typically owned by corporations. Plus anything that has to do with convertibles must be cool, right? You know, driving down the highway in your convertible car with the wind blowing through your hair? Well, convertible securities are nowhere near as sexy as that, as we shall see. For now, all you need to know is that hybrid securities are an attempt to combine the advantages of stocks and bonds together but they also combine the disadvantages of stocks and bonds. We will postpone discussing these oddities until much later in our class. Finally, they constitute a very small part of the\u00a0investment\u00a0universe.<\/div>\r\n<\/div>\r\n<div id=\"section_6\" class=\"mt-section\">\r\n<h2 class=\"lt-biz-79464 editable\">\u00a0Other Investment Alternatives \u2013 Real Estate, Physical Assets<\/h2>\r\n<p class=\"lt-biz-79464\">Not everyone wants to invest in just stocks or bonds or mutual funds. For them, they may want to dabble in the world of real estate or try their hand at\u00a0precious metals,\u00a0art,\u00a0collectibles, cars, or even enter the high-stakes world of commodities. Suffice to say, these investments are not for everyone. For many people, just scraping together the resources to purchase a home is enough real estate for a lifetime. Also, as we will see, some alternatives such as gold that get a great deal of attention have not necessarily been very good investments over the long term. At the very end of our journey together, we will touch on these alternatives. By the way, none of these choices were spared during the<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Global\u00a0Financial Crisis in 2008.<\/div>\r\n<\/div>\r\n<div id=\"section_7\" class=\"mt-section\"><span id=\"Derivatives_.E2.80.93_Options_Contracts.2C_Futures_Contracts\"><\/span>\r\n<h2 class=\"lt-biz-79464 editable\">Derivatives \u2013 Options Contracts, Futures Contracts<\/h2>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Derivative<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/ask\/answers\/12\/derivative.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0assets<\/u><\/a>\u00a0are speculative securities that derive their value from an underlying<\/div>\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">security\u00a0or asset such as a\u00a0stock\u00a0or\u00a0bond. \u201c<em>What? You are not buying the\u00a0<\/em>stock<em>\u00a0or\u00a0<\/em>bond<em>?<\/em>\u201d No, you are buying a\u00a0security\u00a0that depends upon the price movements of a\u00a0stock\u00a0or\u00a0bond. That sounds very confusing. Well, yes, it is. Derivatives are very confusing. More importantly, they are immensely risky. You can make 100% in one day \u2026 and then lose it all the next day. For this reason, we do not categorize them as investments. They are speculations. (Throughout the class, when you see the words speculative or\u00a0speculation, simply substitute the word gambling, okay?)<\/div>\r\n<p class=\"lt-biz-79464\">Two major examples of derivatives are options and futures. Actually, to show you how confusing these things really are, their actual names are options contracts and futures contracts. Try saying those names three times fast. For now, this is all you need to know about derivatives: Derivatives derive their value from another asset, two major examples of derivatives are options and futures, and derivatives are extremely dangerous. In 2008, the\u00a0derivative\u00a0speculators did not feel so all alone. Usually, they are the only ones who are proud to have only lost 30%.<\/p>\r\n<p class=\"lt-biz-79464\">We have completed our Overview of the\u00a0Investment\u00a0Universe. Once again, we remind you that, for now, the material in this chapter is all you need to study and learn with regard to the<\/p>\r\n\r\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">investment\u00a0alternatives discussed above. As you may have gathered by now, in this class, we will emphasize stocks, bonds,\u00a0short-term\u00a0investments, and mutual funds. For the vast majority of us retail investors, these are the most popular and most important financial\u00a0investment\u00a0options. It is now time for us to delve deeply into the Eternal Struggle of Investing,\u00a0Risk\u00a0versus Return. But before we do that, we want you to review the\u00a0investment\u00a0alternatives we have just covered. Please make sure you watch the presentation on the\u00a0<a class=\"link-https\" title=\"https:\/\/wonderprofessor.com\/123\/\" href=\"https:\/\/wonderprofessor.com\/123\/\" target=\"_blank\" rel=\"external noopener nofollow\">class website<\/a>. There is a comprehension checking exercise at the very end of the presentation. Also, work through the\u00a0<u><\/u>Security<a class=\"link-https\" href=\"https:\/\/docs.google.com\/document\/d\/1kNExnq3ZVtdLWY0V_E3Md-M3rtCUzwJkfAPrTUDK4DE\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0Types Handout<\/u><\/a>. Memorize this document for the first exam. (Hint, hint. Wink, wink. Nudge, nudge.)<\/div>\r\n<\/div>\r\n<footer class=\"mt-content-footer\">\r\n\r\n<hr class=\"autoattribution-divider\" \/>\r\n\r\n<div class=\"autoattribution\">\r\n\r\nThis page titled\u00a0<a class=\"internal mt-self-link\" href=\"https:\/\/biz.libretexts.org\/Bookshelves\/Finance\/Introduction_to_Investments_(Paiano)\/01%3A_Chapter_1\/01%3A_Introduction_Overview_and_Risk_versus_Return\/1.03%3A_An_Overview_of_the_Investment_Universe\" target=\"_blank\" rel=\"internal noopener\">1.3: An Overview of the\u00a0<\/a>Investment<a class=\"internal mt-self-link\" href=\"https:\/\/biz.libretexts.org\/Bookshelves\/Finance\/Introduction_to_Investments_(Paiano)\/01%3A_Chapter_1\/01%3A_Introduction_Overview_and_Risk_versus_Return\/1.03%3A_An_Overview_of_the_Investment_Universe\" target=\"_blank\" rel=\"internal noopener\">\u00a0Universe<\/a>\u00a0is shared under a\u00a0<a href=\"https:\/\/creativecommons.org\/licenses\/by-nc-sa\/4.0\" target=\"_blank\" rel=\"nofollow noopener\">CC BY-NC-SA 4.0<\/a>\u00a0license and was authored, remixed, and\/or curated by\u00a0<a href=\"https:\/\/wonderprofessor.com\/\" target=\"_blank\" rel=\"nofollow noopener\">Frank Paiano<\/a>.\r\n\r\n<\/div>\r\n<\/footer>","rendered":"<p class=\"lt-biz-79464\"><iframe loading=\"lazy\" id=\"iFrameResizer0\" title=\"Chapter 01 - Slides 15-34 - Overview of Investment Types\" src=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.html\" width=\"640\" height=\"480\" allowfullscreen=\"allowfullscreen\" data-mce-fragment=\"1\"><\/iframe><\/p>\n<p class=\"lt-biz-79464\"><a class=\"inline_disabled\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.html\" target=\"_blank\" rel=\"noopener\">Video<\/a>\u00a0&#8211;\u00a0<a class=\"inline_disabled\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_Slides_15_to_34\/Chap01_Slides_15_to_34.mp3\" target=\"_blank\" rel=\"noopener\">Audio<\/a>\u00a0&#8211;\u00a0<a class=\"inline_disabled\" title=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_YouTube_15_34.html\" href=\"https:\/\/wonderprofessor.com\/123\/Chap01\/Chap01_YouTube_15_34.html\" target=\"_blank\" rel=\"noopener\">YouTube<\/a><\/p>\n<p class=\"lt-biz-79464\">Let\u2019s become casually acquainted with the major<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">investment\u00a0asset classes. We will dispense with all the tedious details. Concern yourself with just what we cover here. Don\u2019t fret. There will be plenty of time later on to learn the many intricacies of these investments. As we introduce each\u00a0investment\u00a0asset class, we will also touch on the\u00a0risk and return that we can expect from each.<\/div>\n<div id=\"section_1\" class=\"mt-section\">\n<h2 class=\"lt-biz-79464 editable\">Equity Securities, Also Known as Common Stocks or Stocks<\/h2>\n<p class=\"lt-biz-79464\">In the\u00a0investment\u00a0world,\u00a0equity\u00a0refers to ownership.\u00a0Equity\u00a0securities, also known as\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/c\/commonstock.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>common stocks<\/u><\/a>, represent partial ownership in corporations. Most people just use the term\u00a0<em>stocks<\/em>. The term\u00a0<em>stocks<\/em>\u00a0is a bit unfortunate. Your Humble Author prefers to refer to them as companies or better yet, businesses. You are investing in a business. Why invest in a business? When all goes well, businesses grow and earn money. This creates two great opportunities for investors. When the business grows, your partial ownership of the business should also grow. That\u2019s\u00a0capital appreciation, also known as\u00a0capital\u00a0gains. Also, the business can optionally distribute earnings to you in the form of dividends. (You can think of dividends like<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">interest\u00a0payments even though they are legally two different forms of payments.) We invest in businesses for potential\u00a0capital appreciation\u00a0and potential dividends. We invest for<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">growth and income. Note that we said, \u201cWhen all goes well.\u201d Obviously, all doesn\u2019t always go well in this wicked world of ours, does it? Both<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">capital appreciation\u00a0and dividends are optional and are not guaranteed. Therefore, we find that stocks are high-risk\u00a0investments. We say that stocks are\u00a0<em>volatile<\/em>. Stocks exhibit high<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">volatility.\u00a0Volatility\u00a0is a euphemism for, \u201cI lost a whole lotta\u2019 money!\u201d You might ask someone how that\u00a0stock\u00a0he or she bought is doing and they may sheepishly say, \u201cOh, it\u2019s been volatile.\u201d That means they bought it for $11.88 and sold it for 30\u00a2. Do you know anyone who bought a\u00a0stock\u00a0for $11.88 and sold it for 30\u00a2? I do. I have known him all my life. He\u2019s kind of a goofy guy who teaches Introduction to Investments at Southwestern Community College in Chula Vista \u2026 Look, it was a really good company and they were going to strike it rich by making artificial blood and there would be no more need for blood banks or\u00a0calls to the public to donate blood and\u00a0well, um, it just didn\u2019t turn out the way it was supposed to. Ahem. Stocks are volatile. Stocks are risky. In fact, to paraphrase\u00a0<a class=\"link-https\" href=\"https:\/\/en.wikipedia.org\/wiki\/Burton_Malkiel\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Professor Burton Malkiel<\/u><\/a>\u00a0from his famous book,\u00a0<a class=\"link-https\" href=\"https:\/\/en.wikipedia.org\/wiki\/A_Random_Walk_Down_Wall_Street\" target=\"_blank\" rel=\"external noopener nofollow\"><u><em>A Random Walk Down Wall Street<\/em><\/u><\/a>\u00a0discussed in our\u00a0<a class=\"link-https\" href=\"https:\/\/docs.google.com\/document\/d\/1UMe6PZ9-dRhlRQoSBPN2hTnR8QIgWFb7Fxv0EW1ZXcY\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Bibliography<\/u><\/a>, the 2008 definition of stocks is, \u201cStocks are\u00a0equity investment instruments designed to lose value.\u201d However, if we can learn to stomach the\u00a0volatility\u00a0that comes along with\u00a0stock\u00a0investing, history tells us that we can reasonably expect to receive some of the best\u00a0long-term returns available from the investment\u00a0world. We like to say that stocks have an\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/a\/aar.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>average annual return<\/u><\/a>\u00a0of 8%, 9%, or even 10% over the long term. The problem is that they almost never return 8% or 9% or 10% in any given year. The returns vary substantially, up and down. For this reason, when we want to invest in stocks, we must think long term. We must give our\u00a0stock investment\u00a0enough time to reward us with 8% or 9% or 10% annually. As Warren Buffett is quoted as saying, \u201cIf you aren\u2019t thinking about owning a\u00a0stock\u00a0for ten years, don\u2019t even think about owning it for ten minutes.\u201d Stocks are\u00a0long-term\u00a0investments.<\/div>\n<p class=\"lt-biz-79464\"><em>Disclaimers:<\/em>\u00a0The real estate fans are most likely jumping up and down and screaming that real estate has given investors better returns than stocks. Calm down and please accept my apologies. In one sense, they are correct. In another, they are not. The problem is how we measure\u00a0investment\u00a0returns and how different investments are typically purchased. We will deal with this thorny issue later on. Some\u00a0stock\u00a0fans might also be screaming saying that 8%, 9%, 10% is too low. Stocks have done better. This is actually true. Stocks as a whole have done better than 10% over the last 100 years and some stocks have done a whole lot better. However, some have done a whole lot worse. We prefer to keep new investors\u2019 expectations muted, especially since there are long periods of time where stocks have done a whole lot worse than 8%, 9%, or 10%. Finally, a scant few stocks can be considered moderate<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">risk\u00a0and moderate return vehicles. In the presentation for the previous section \u2012 You have watched it already, right? \u2012 we discussed Nestl\u00e9, the world\u2019s largest food company. Companies such as Nestl\u00e9 can be categorized as moderate\u00a0risk and moderate return investments.<\/div>\n<\/div>\n<div id=\"section_2\" class=\"mt-section\">\n<h2 class=\"lt-biz-79464 editable\">\u00a0Fixed-Income Securities, Also Known as Bonds<\/h2>\n<p class=\"lt-biz-79464\">Fixed-income\u00a0securities are typically referred to as bonds.\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/b\/bond.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Bonds<\/u><\/a>\u00a0are\u00a0long-term\u00a0loans to corporations, state and local municipalities, and the Federal government. When you invest in a<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">bond, you get to play the part of a bank. You lend your money to one of these entities. In return, they promise to repay the\u00a0principal\u00a0\u2012 the money you lent them \u2012 and along the way, they will pay you\u00a0interest. Most people pay their debts to the banks. Likewise, most corporations and state and local governments also pay their debts. The United States Treasury has always paid its debts. Hence, we find that bonds are far less risky than stocks. And subsequently, we find the long term return from bonds is far less than stocks. (Are you starting to see a pattern here, Dear Students?) What can we expect from bonds? Investors used to be accustomed to receiving 3% to 8% in\u00a0interest\u00a0from their\u00a0bond\u00a0investments. During the years after the<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Global\u00a0Financial crisis, many bonds paid 1% to 3%. Greater than 4% is unusual. In 2022,\u00a0interest\u00a0rates rose and investors could again find attractive\u00a0interest rates from many bonds. Remember that bonds are securities and\u00a0bond\u00a0prices change in the marketplace every day just like stocks. At first, it may seem a bit odd that the value of a loan could vary. Yet there are times when the prices of bonds can fall, too. However, as mentioned though, the\u00a0volatility\u00a0with regard to bonds is much less than what stocks exhibit. To repeat, the fall will typically be far less than stocks but it can still sting. For example, when some stocks lost well over 50% during the\u00a0Global\u00a0Financial Crisis of the late 2000\u2019s, many bonds lost between 10% and 20%. A similar decline in bonds was experienced in 2022. We again paraphrase Professor Malkiel by saying the 2008 definition of bonds is, \u201cBonds are fixed-rate\u00a0investment instruments designed to lose value.\u201d<\/div>\n<\/div>\n<div id=\"section_3\" class=\"mt-section\">\n<h2 class=\"lt-biz-79464 editable\">Short-Term Investments, Also Known as \u201cCash\u201d \u2012 A Place to Park Your Money<\/h2>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Short-term<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/s\/shorterminvestments.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0investments<\/u><\/a>\u00a0are often referred to as \u201ccash.\u201d We usually see cash put in quotes because these investments are not dollar bills that we stuff under our mattresses. Many of these\u00a0short-term\u00a0instruments are tradable securities so again, their prices do change. However, they are vehicles that are typically guaranteed by some governmental organization. And if they are not guaranteed, they are pretty darned close. If you have been paying attention, you should be able to guess correctly that since these choices have very low\u00a0risk, these investments will not give us much reward. Therefore, we say that\u00a0short-term\u00a0investments are a place to park your money. You aren\u2019t going to lose your money, but you also aren\u2019t going to make much money. That is why we call them\u00a0short-term\u00a0investments. If we need the money in the\u00a0short-term, we don\u2019t want to place our funds into the\u00a0stock\u00a0market. Even the<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">bond\u00a0market might be too risky for us. We need to park our money into a\u00a0short-term investment\u00a0so that in three, six, or nine months, we know it will not have lost 10%, 20%, or more of its value. At the end of this introductory chapter, we will cover\u00a0short-term\u00a0investments in detail. Our 2008 Definition? \u201cShort-term investments are instruments designed to accept what remains of investors\u2019 money after they have given up on stocks and bonds.\u201d<\/div>\n<\/div>\n<div id=\"section_4\" class=\"mt-section\"><span id=\"Mutual_Funds.2C_Also_Known_as_Investment_Companies_.E2.80.92_Investments_for_the_Masses\"><\/span><\/p>\n<h2 class=\"lt-biz-79464 editable\">Mutual Funds, Also Known as Investment Companies \u2012 Investments for the Masses<\/h2>\n<p class=\"lt-biz-79464\">Unless you live on a deserted island or somehow effectively have shut out all forms of mass media, you no doubt have been subjected to advertisements for\u00a0<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/m\/mutualfund.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>mutual funds<\/u><\/a>. There is a valid reason for this. Mutual funds are investments for the masses. Just as most of us workaday individuals don\u2019t build our own cars, make our own shoes, or grow our own food, most people will not dedicate the time to learn how to invest. (This is most unfortunate. Everyone should take Introduction to Investments, not that I\u2019m biased, of course.) And education is just the beginning! They then need to spend many hours doing the necessary research to identify, choose, and monitor their individual\u00a0stock\u00a0and\u00a0bond investments. You, Dear Readers, are going to make this a fun and profitable labor of love. Many other people are either not interested, too nervous or frightened, or just simply too busy living their lives. This is where mutual funds come into the picture. The legal term for a\u00a0mutual fund\u00a0is an\u00a0<u><\/u>investment<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/i\/investmentcompany.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0company<\/u><\/a>. Now doesn\u2019t that name make more sense? The term\u00a0investment\u00a0company tells you what the<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">mutual fund\u00a0does for you. Do you need a car? You go to a car company. You need shoes? You go to a shoe company. You need investments? You go to an\u00a0investment\u00a0company! Mutual funds \/\u00a0investment\u00a0companies are companies that pool investors\u2019 money and invest in a diversified portfolio of securities, typically stocks, bonds, or a combination of stocks and bonds. Investors receive two valuable benefits,\u00a0<u><\/u>diversification<u><\/u>\u00a0and\u00a0<u><\/u>professional money management<u><\/u>. Because of the size of the typical\u00a0mutual fund, they are not limited to 10 or 20 stocks or bonds as is common with an individual investor. More than 20 stocks and an individual investor often becomes overwhelmed with the necessary research to simply keep track of their holdings. A typical\u00a0mutual fund will hold 100 or 200 securities. Some hold many more.<\/div>\n<p class=\"lt-biz-79464\">So how does the\u00a0mutual fund\u00a0keep from becoming overwhelmed? The\u00a0mutual fund\u00a0is managed by professional money managers, the second major benefit of investing in mutual funds. The\u00a0mutual fund\u00a0portfolio managers are highly skilled and very well-paid professionals whose day-to-day job is to identify, choose, and then monitor the diversified portfolio of investments in the\u00a0mutual fund. As we shall see, it is not an easy job and there is some controversy over whether these individuals are actually worth the high salaries they demand. We will explore this debate in our chapter dedicated to mutual funds.<\/p>\n<p class=\"lt-biz-79464\">Because of these two valuable benefits \u2012\u00a0diversification\u00a0and\u00a0professional money management\u00a0\u2012 mutual funds have become extremely popular. Adding to their popularity are the countless employer-sponsored retirement programs such as\u00a0401(k)\u00a0and\u00a0403(b)\u00a0plans. Mutual funds are the dominant\u00a0investment\u00a0choice for employer-sponsored retirement programs. Almost half of all American households own mutual funds. In our next chapter, because of their importance as investments for the masses, we will spend a great deal of time on mutual funds.<\/p>\n<p class=\"lt-biz-79464\"><img decoding=\"async\" class=\"internal\" src=\"https:\/\/biz.libretexts.org\/@api\/deki\/files\/37787\/Chap02_Mutual_Funds_Explained__Ferran_Massaged.png?revision=1&amp;size=bestfit&amp;width=711&amp;height=521\" alt=\"Mutual Funds, also known as Investment Companies: Investments for the Masses\" width=\"711px\" height=\"521px\" \/><\/p>\n<p class=\"lt-biz-79464\"><em>Mutual Funds: Investments for the Masses,\u00a0<\/em><em>Graphics courtesy of Ferran Capo:\u00a0<\/em><a class=\"external\" href=\"http:\/\/www.ferrancapo.com\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u><em>StudioCapo<\/em><\/u><\/a><\/p>\n<p class=\"lt-biz-79464\">What kinds of risks and returns can we expect from mutual funds? Mutual funds will exhibit risks and returns similar to their underlying investments. There are many mutual funds that fall into the\u00a0short-term investment\u00a0category. These are called money market funds. Low\u00a0risk, low return. However, most mutual funds are dedicated to stocks or bonds or both and they will exhibit the same\u00a0risk versus return characteristics of stocks and bonds. Hence, what is their 2008 definition? \u201cYeah, them too.\u201d 2008 was a very difficult year for everyone.<\/p>\n<\/div>\n<div id=\"section_5\" class=\"mt-section\"><span id=\"Hybrid_Securities_.E2.80.93_Preferred_Stocks_and_Convertible_Securities\"><\/span><\/p>\n<h2 class=\"lt-biz-79464 editable\">Hybrid Securities \u2013 Preferred Stocks and Convertible Securities<\/h2>\n<p class=\"lt-biz-79464\"><a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/terms\/h\/hybridsecurity.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>Hybrid securities<\/u><\/a>\u00a0are designed to offer the stability of fixed-income\u00a0investments (bonds) with the opportunity for\u00a0capital growth\u00a0of\u00a0equity investments (stocks). With these investments, we are trying to get the best of both worlds. The pesky fly in the ointment with this approach is that along with the advantages of both stocks and bonds, you also get the disadvantages of both stocks and bonds. So, we get the best of both worlds \u2026 and we get the worst of both worlds.<\/p>\n<p class=\"lt-biz-79464\">Other annoying flies buzzing around the\u00a0hybrid security\u00a0worlds are the names of the major types of hybrid securities. The two major examples of hybrid investments are<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">preferred stock\u00a0and convertible securities. Don\u2019t they sound enticing? Wouldn\u2019t you really rather have \u201cpreferred stock\u201d instead of just \u201ccommon\u00a0stock?\u201d Well, actually, no, you and I and most individual investors don\u2019t really want\u00a0preferred stock. They are typically owned by corporations. Plus anything that has to do with convertibles must be cool, right? You know, driving down the highway in your convertible car with the wind blowing through your hair? Well, convertible securities are nowhere near as sexy as that, as we shall see. For now, all you need to know is that hybrid securities are an attempt to combine the advantages of stocks and bonds together but they also combine the disadvantages of stocks and bonds. We will postpone discussing these oddities until much later in our class. Finally, they constitute a very small part of the\u00a0investment\u00a0universe.<\/div>\n<\/div>\n<div id=\"section_6\" class=\"mt-section\">\n<h2 class=\"lt-biz-79464 editable\">\u00a0Other Investment Alternatives \u2013 Real Estate, Physical Assets<\/h2>\n<p class=\"lt-biz-79464\">Not everyone wants to invest in just stocks or bonds or mutual funds. For them, they may want to dabble in the world of real estate or try their hand at\u00a0precious metals,\u00a0art,\u00a0collectibles, cars, or even enter the high-stakes world of commodities. Suffice to say, these investments are not for everyone. For many people, just scraping together the resources to purchase a home is enough real estate for a lifetime. Also, as we will see, some alternatives such as gold that get a great deal of attention have not necessarily been very good investments over the long term. At the very end of our journey together, we will touch on these alternatives. By the way, none of these choices were spared during the<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Global\u00a0Financial Crisis in 2008.<\/div>\n<\/div>\n<div id=\"section_7\" class=\"mt-section\"><span id=\"Derivatives_.E2.80.93_Options_Contracts.2C_Futures_Contracts\"><\/span><\/p>\n<h2 class=\"lt-biz-79464 editable\">Derivatives \u2013 Options Contracts, Futures Contracts<\/h2>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">Derivative<a class=\"link-https\" href=\"https:\/\/www.investopedia.com\/ask\/answers\/12\/derivative.asp\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0assets<\/u><\/a>\u00a0are speculative securities that derive their value from an underlying<\/div>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">security\u00a0or asset such as a\u00a0stock\u00a0or\u00a0bond. \u201c<em>What? You are not buying the\u00a0<\/em>stock<em>\u00a0or\u00a0<\/em>bond<em>?<\/em>\u201d No, you are buying a\u00a0security\u00a0that depends upon the price movements of a\u00a0stock\u00a0or\u00a0bond. That sounds very confusing. Well, yes, it is. Derivatives are very confusing. More importantly, they are immensely risky. You can make 100% in one day \u2026 and then lose it all the next day. For this reason, we do not categorize them as investments. They are speculations. (Throughout the class, when you see the words speculative or\u00a0speculation, simply substitute the word gambling, okay?)<\/div>\n<p class=\"lt-biz-79464\">Two major examples of derivatives are options and futures. Actually, to show you how confusing these things really are, their actual names are options contracts and futures contracts. Try saying those names three times fast. For now, this is all you need to know about derivatives: Derivatives derive their value from another asset, two major examples of derivatives are options and futures, and derivatives are extremely dangerous. In 2008, the\u00a0derivative\u00a0speculators did not feel so all alone. Usually, they are the only ones who are proud to have only lost 30%.<\/p>\n<p class=\"lt-biz-79464\">We have completed our Overview of the\u00a0Investment\u00a0Universe. Once again, we remind you that, for now, the material in this chapter is all you need to study and learn with regard to the<\/p>\n<div class=\"glossarizer_replaced\" aria-expanded=\"false\">investment\u00a0alternatives discussed above. As you may have gathered by now, in this class, we will emphasize stocks, bonds,\u00a0short-term\u00a0investments, and mutual funds. For the vast majority of us retail investors, these are the most popular and most important financial\u00a0investment\u00a0options. It is now time for us to delve deeply into the Eternal Struggle of Investing,\u00a0Risk\u00a0versus Return. But before we do that, we want you to review the\u00a0investment\u00a0alternatives we have just covered. Please make sure you watch the presentation on the\u00a0<a class=\"link-https\" title=\"https:\/\/wonderprofessor.com\/123\/\" href=\"https:\/\/wonderprofessor.com\/123\/\" target=\"_blank\" rel=\"external noopener nofollow\">class website<\/a>. There is a comprehension checking exercise at the very end of the presentation. Also, work through the\u00a0<u><\/u>Security<a class=\"link-https\" href=\"https:\/\/docs.google.com\/document\/d\/1kNExnq3ZVtdLWY0V_E3Md-M3rtCUzwJkfAPrTUDK4DE\/\" target=\"_blank\" rel=\"external noopener nofollow\"><u>\u00a0Types Handout<\/u><\/a>. Memorize this document for the first exam. (Hint, hint. Wink, wink. Nudge, nudge.)<\/div>\n<\/div>\n<footer class=\"mt-content-footer\">\n<hr class=\"autoattribution-divider\" \/>\n<div class=\"autoattribution\">\n<p>This page titled\u00a0<a class=\"internal mt-self-link\" href=\"https:\/\/biz.libretexts.org\/Bookshelves\/Finance\/Introduction_to_Investments_(Paiano)\/01%3A_Chapter_1\/01%3A_Introduction_Overview_and_Risk_versus_Return\/1.03%3A_An_Overview_of_the_Investment_Universe\" target=\"_blank\" rel=\"internal noopener\">1.3: An Overview of the\u00a0<\/a>Investment<a class=\"internal mt-self-link\" href=\"https:\/\/biz.libretexts.org\/Bookshelves\/Finance\/Introduction_to_Investments_(Paiano)\/01%3A_Chapter_1\/01%3A_Introduction_Overview_and_Risk_versus_Return\/1.03%3A_An_Overview_of_the_Investment_Universe\" target=\"_blank\" rel=\"internal noopener\">\u00a0Universe<\/a>\u00a0is shared under a\u00a0<a href=\"https:\/\/creativecommons.org\/licenses\/by-nc-sa\/4.0\" target=\"_blank\" rel=\"nofollow noopener\">CC BY-NC-SA 4.0<\/a>\u00a0license and was authored, remixed, and\/or curated by\u00a0<a href=\"https:\/\/wonderprofessor.com\/\" target=\"_blank\" rel=\"nofollow noopener\">Frank Paiano<\/a>.<\/p>\n<\/div>\n<\/footer>\n","protected":false},"author":33,"menu_order":4,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-496","chapter","type-chapter","status-publish","hentry"],"part":485,"_links":{"self":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapters\/496","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/wp\/v2\/users\/33"}],"version-history":[{"count":1,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapters\/496\/revisions"}],"predecessor-version":[{"id":497,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapters\/496\/revisions\/497"}],"part":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/parts\/485"}],"metadata":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapters\/496\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/wp\/v2\/media?parent=496"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/pressbooks\/v2\/chapter-type?post=496"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/wp\/v2\/contributor?post=496"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.ccconline.org\/accinvestments\/wp-json\/wp\/v2\/license?post=496"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}