Question

You have learned a lot about growing your money. Now it's time to show what you know. Imagine you win $10,000 in a state competition and decide to invest your prize. Choose three investment options from the lesson for your money. Describe your investment plan in a detailed paragraph. Be sure to include responses to the following questions: Why did you choose these three options?

Answer 1

An investment plan dividing $10,000 among a diversified stock portfolio, certificates of deposit, and money market mutual funds balances the potential for high returns with risk management and liquidity.

Step-by-step explanation:

Having won a $10,000 prize, I would allocate the funds into three investment options: a well-diversified stock portfolio, certificates of deposit (CDs), and money market mutual funds. I choose these options due to their different levels of risk and potential for return. The diversified stock portfolio, although riskier, has the potential for a high rate of return, especially when one takes advantage of compound interest over an extended period. The historical average return of 7% annual rate of return, factoring in compound interest, suggests considerable growth potential. CDs offer a lower, but more stable rate of return and are insured, making them a safer option. Money market mutual funds provide liquidity and stability, offering a balance between earning interest and maintaining access to funds.