Risk and reward. They are two sides of the same coin – at least that’s the way it’s supposed to work for stock investors.
If you assume the risk of investing in a stock, you should expect a reward that is appropriate to the risk.
The problem with the risk and reward relationship is that the reward is always a “potential” reward. If it were certain, there would be no risk.
Still, investors need a way to figure out way that reward should be. Fortunately, there is a quick way you can get a reading on an investment's potential reward to see if it is in line with the risk you are taking.
First Step The first step is to determine the “risk-free” return available in the market. This is an investment you could own that is without risk and serves as a baseline for your measurement.
Government.
If you can earn a risk-free return from Treasury bonds of five percent, that becomes your baseline. Any investment with risk must return more than five percent.
The amount the investment returns over five percent is known as the risk premium.
For example, if you are looking at a stock that with an expected return of 11 percent, the risk premium is six percent (11% - 5% = 6% risk premium).
Enough Is that enough of a premium for the risk that this particular stock may not achieve the return you expect?
For a well-established, large-cap stock, it probably is. However, for a young, small-cap stock, that may not be enough of a risk premium to justify the risk you are taking with the investment.
Conclusion This simple test is certainly not all the analysis you should do and there could be other factors involved. However, you should always ask yourself if the risk premium for a particular investment makes it worth risking your money on a particular stock (or any investment).
Thursday, March 13, 2008
Wednesday, March 12, 2008
return of life insurance premiums
If you've been looking into the best new way to buy term life insurance, there are many sites online that can help you. Some of the fast and free life insurance quotes you can already receive online can be easily changed around into ROP only quotes. By doing some of the legwork for you and providing you with the names of companies that provide this top service, you can still comparison shop but for a better overall deal.
Why Choose Return of Premium Life Insurance?
This type of life insurance (known as ROP for short) was introduced less than a decade ago and has become the newest, best deal in insurance. Traditional term policies provide peace of mind; if you have a 20 year 500,000 dollar policy and you die in year one or year eighteen, the beneficiary still receives 500,000 dollars. Return of premium insurance, however, was designed for the many people who don't have a death wish.
Many policy holders observed that although traditional term life insurance provided peace of mind, they received nothing back for their money unless they died. This led to a return of premium policy, in which the premiums are paid back to the policyholder if he or she is still alive after the term expires. The money is tax-free, but it excludes any riders or substandard charges.
If a nonsmoking 30 year old male takes out a 20 year policy that costs 600 dollars a year, he would receive $12,000 back at the end of 20 years. ROP life insurance has a few more provisions than other types, and can be a bit more expensive than traditional term life. But with all of the options for the investment, it is easy to see why more and more people are purchasing this type of policy.
Why Choose Return of Premium Life Insurance?
This type of life insurance (known as ROP for short) was introduced less than a decade ago and has become the newest, best deal in insurance. Traditional term policies provide peace of mind; if you have a 20 year 500,000 dollar policy and you die in year one or year eighteen, the beneficiary still receives 500,000 dollars. Return of premium insurance, however, was designed for the many people who don't have a death wish.
Many policy holders observed that although traditional term life insurance provided peace of mind, they received nothing back for their money unless they died. This led to a return of premium policy, in which the premiums are paid back to the policyholder if he or she is still alive after the term expires. The money is tax-free, but it excludes any riders or substandard charges.
If a nonsmoking 30 year old male takes out a 20 year policy that costs 600 dollars a year, he would receive $12,000 back at the end of 20 years. ROP life insurance has a few more provisions than other types, and can be a bit more expensive than traditional term life. But with all of the options for the investment, it is easy to see why more and more people are purchasing this type of policy.
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