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Finance Definitions Videos 674 videos

Finance: What's the Difference Between Federal and State Taxes?
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What is the difference between federal and state taxes? Federal taxes: the whole country. Taxes for national defense, interstate roadways, national...

Finance: What's the Difference Between Stocks and Bonds?
186 Views

What is the difference between stocks and bonds? Stocks are ownership. They control the election of the board of directors, who hires the CEO, who...

Finance: What Rights Does a Public Stockholder Have?
67 Views

What rights does a public stockholder have? Common shareholders elect the board of directors. They vote. They have the right to quarterly financial...

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Finance: How Are Risks and Rewards Related? 589 Views


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Description:

How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in ten billion that you win, then it's a bad bet, ten times over.

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Transcript

00:04

Finance a la shmoop how are risk and reward related? or

00:10

interrelated okay so here's an illustration of risk you're in a golf [golfball near a golf hole]

00:15

tournament on the first tee of a hole with a narrow fairway if you take just a

00:19

half swing your ball won't go very far but you also likely won't end up here [golfer gives a half swing and ball goes towards the hole]

00:24

it'll almost certainly fit nicely in the fairway and it's likely you'll need

00:28

three or four half swing strokes to reach the green if you're cool with [golfer taking multiple shots and reaches the green]

00:33

shooting 28 over par or a hundred today well then maybe these half

00:37

swings are your ticket to happiness sometimes a score of a hundred wins the [golfer stood beside a scoreboard with a score of 100]

00:41

purple turkey that is you are taking less risk and are totally fine being

00:46

rewarded less all right now meet Corey Mcilshmoop he wants the big score

00:52

lots of strokes under par and he's willing to risk a lot to get there. His [Corey Mcilshmoop swinging a golf club]

00:57

ball either goes 340 yards and lands on the green setting him up for an eagle

01:02

putt it goes out of bounds with a vengeance there, ouch.. all right well on

01:06

the investing golf course like this one generally speaking riskier investments [golf course made into an investment course]

01:10

are things that don't have a long track record of success like compare the

01:15

coca-cola company with a new IPO of whatever.com what are the odds that in [a comparison of coca cola vs. whatever.com]

01:20

five years people are still drinking sugared fizzy water well pretty good

01:25

right now how about the odds of a billion people still being enamored of [myspace and whatever.com with number of people liking the website rising]

01:29

whatever com yeah much less clear like less clear than crystal pepsi.. Risky can

01:35

also mean private investments in two kids plugging away inside of a garage [Kids working on a project in a garage on laptops]

01:39

and yeah they could be Larry and Sergey making Google but more likely they could

01:44

be buzz and billy-bob making a whoopee cushion that pushes the bounds of

01:47

realism yeah..risky can also be just a company that doesn't pay a dividend if a

01:54

company does pay a divy, you at least get the dividend back each year as you slowly get your

01:58

initial investment returned to you you can make money even if the stock price [company's share price, dividend and yield]

02:02

doesn't go up in the case where stock pays no dividend your instead betting [person puts chips onto a roulette table]

02:07

everything that the company will just grow but growth companies with no

02:11

dividend while that's all well and good think things

02:13

like Facebook and Amazon and uber but if the company doesn't grow well then bad [whatever.com falling on the floor]

02:18

things happen you've got no dividend and the share prices declined and so the

02:23

basic idea is that the more risk you take the more reward you can have in the [man playing golf and eagle swoops and picks up ball]

02:27

same lack of reward you can have as well and every now and then you get one of

02:31

the three hundred forty yard drive to go in the hole which makes the risk totally [money falling next to a building of baby's first chainsaw]

02:36

worth it yeah because well you're never going to sit around telling your

02:39

grandkids about the time you shanked your drive 15 yards [grandad telling children a story about golf]

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