Posted by admin on 22 Jan 2008 5:43 pm. Filed under Investing.
Candycane07 asked:
Discuss each of the following types of investments in terms of their liquidity, their risk, and their income, and their growth potential:
Bonds, Stocks, and Real Estate.
4 Comments to “Discuss each of the following types of investments in terms of their liquidity?”
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James R said:
On January 25th, 2008 at 4:29 pm
Bonds if traded on a major exchange are just as liquid as stocks or mutual funds. Bonds are rated by Moody’s or Standard & Poors as to the amount of risk they have. This information can be found on any financial web site. Bonds have very little growth potential but they provide a steady income stream until they mature.
Stocks are also very liquid. There risk and income potential vary greatly depending on the company. Unless you know how to research stocks you are best to rely on a competent stock broker.
Real estate is the least liquid of all. The downside risk can be great but the upside gain can also be quite good. The income potential depends on the type of real estate you invest in. Apartment buildings and office buildings have a steady income stream. Vacant land does not normally provide for a steady income flow but can appreciate greatly if located in a high demand area. Prresently real estate is in a buyer’s market rather than a seller’s market. If you have the cash a real estate investment right now could be very profitable.
googie said:
On January 27th, 2008 at 3:13 am
My advice to you is to go to your nearest library,ask for the most comprehensive text on investing. read it thoroughly and take notes on sections which refer to the listed investments, their liquidity, their income and risk. You will be more informed and exposed to factors which will stand you in good stead when you decide to invest.
Stephanie C said:
On January 29th, 2008 at 3:26 pm
Liquidity:
Of these three investment types, stocks are generally the most liquid, with funds available 3 days after the transaction date. Bonds offer a medium liquidity, as they can also be sold before maturity. But in general, bonds have maturity dates of 5-10 years. Real estate would be the most illiquid investment, especially given the current market conditions.
Risk:
AAA bonds are the least risky investments. These would include those issued by the US government, as well as a handful of corporations (GE is one example). Stocks and real estate are both risky, depending on the type of investment. There is a continuum of risk for stocks, depending on the type of company. The blue chip stocks (those of large corporations) are generally the least risky, but there are always exceptions. In the past, real estate was considered a relatively risk-free investment. But given the increasing liquidity risk, that has changed.
Income:
Bonds generally offer a fixed coupon rate of interest on a semi-annual basis. Savings bonds, on the other hand, are bought at a discount from the face value and pay face value at maturity (i.e., pay $40 for $50 in the future… earn $10 in interest). Most stocks pay annual dividends, but that varies based on the company’s earnings. Real estate doesn’t offer income (unless the real estate is a rental property… then you earn whatever amount is in excess of the mortgage and property taxes).
Growth:
Stocks have the highest growth potential, and are therefore the most risky. Real estate can appreciate in value, but it can also lose value… again showing the risks. Bonds face value never changes, but the market will buy and sell the investments based upon the current interest rate environment. For example, if the interest rate the bond pays is above where the current market interest rates, then investors will pay a premium (i.e., more than the face value) for the extra interest payments.
Richard_Guttman said:
On January 29th, 2008 at 10:38 pm
In general stocks and bonds trade on the market and are very liquid. Real Estate of course is not very liquid because you need a broker to advertise and it may be months before you can get a buyer.
Risks, its like talking about people, there are such variences in each population that to compare each population is almost useless. BUT stocks tend to be riskier than Bonds but stocks tend to yield more over time. Real estate can be looked at as income producing but each RE investment has to be looked at as an individual business, how much are you borrowing to purchase, how much are the rents how good are the tenants?
On January 25th, 2008 at 4:29 pm
Bonds if traded on a major exchange are just as liquid as stocks or mutual funds. Bonds are rated by Moody’s or Standard & Poors as to the amount of risk they have. This information can be found on any financial web site. Bonds have very little growth potential but they provide a steady income stream until they mature.
Stocks are also very liquid. There risk and income potential vary greatly depending on the company. Unless you know how to research stocks you are best to rely on a competent stock broker.
Real estate is the least liquid of all. The downside risk can be great but the upside gain can also be quite good. The income potential depends on the type of real estate you invest in. Apartment buildings and office buildings have a steady income stream. Vacant land does not normally provide for a steady income flow but can appreciate greatly if located in a high demand area. Prresently real estate is in a buyer’s market rather than a seller’s market. If you have the cash a real estate investment right now could be very profitable.
On January 27th, 2008 at 3:13 am
My advice to you is to go to your nearest library,ask for the most comprehensive text on investing. read it thoroughly and take notes on sections which refer to the listed investments, their liquidity, their income and risk. You will be more informed and exposed to factors which will stand you in good stead when you decide to invest.
On January 29th, 2008 at 3:26 pm
Liquidity:
Of these three investment types, stocks are generally the most liquid, with funds available 3 days after the transaction date. Bonds offer a medium liquidity, as they can also be sold before maturity. But in general, bonds have maturity dates of 5-10 years. Real estate would be the most illiquid investment, especially given the current market conditions.
Risk:
AAA bonds are the least risky investments. These would include those issued by the US government, as well as a handful of corporations (GE is one example). Stocks and real estate are both risky, depending on the type of investment. There is a continuum of risk for stocks, depending on the type of company. The blue chip stocks (those of large corporations) are generally the least risky, but there are always exceptions. In the past, real estate was considered a relatively risk-free investment. But given the increasing liquidity risk, that has changed.
Income:
Bonds generally offer a fixed coupon rate of interest on a semi-annual basis. Savings bonds, on the other hand, are bought at a discount from the face value and pay face value at maturity (i.e., pay $40 for $50 in the future… earn $10 in interest). Most stocks pay annual dividends, but that varies based on the company’s earnings. Real estate doesn’t offer income (unless the real estate is a rental property… then you earn whatever amount is in excess of the mortgage and property taxes).
Growth:
Stocks have the highest growth potential, and are therefore the most risky. Real estate can appreciate in value, but it can also lose value… again showing the risks. Bonds face value never changes, but the market will buy and sell the investments based upon the current interest rate environment. For example, if the interest rate the bond pays is above where the current market interest rates, then investors will pay a premium (i.e., more than the face value) for the extra interest payments.
On January 29th, 2008 at 10:38 pm
In general stocks and bonds trade on the market and are very liquid. Real Estate of course is not very liquid because you need a broker to advertise and it may be months before you can get a buyer.
Risks, its like talking about people, there are such variences in each population that to compare each population is almost useless. BUT stocks tend to be riskier than Bonds but stocks tend to yield more over time. Real estate can be looked at as income producing but each RE investment has to be looked at as an individual business, how much are you borrowing to purchase, how much are the rents how good are the tenants?