Final answer:
Lisa should consider investment options that balance potential returns with risk tolerance, such as a well-diversified stock portfolio. While high-risk investments do not guarantee low returns, they come with greater volatility. Compound interest can significantly increase returns over time, showcasing the benefits of long-term investments.
Step-by-step explanation:
Lisa is considering investment options for her $1,000 cash with the aim to double it. To make an informed decision, she may analyze various factors such as average return over time, probability of loss, and the power of compound interest. For example, investing in a well-diversified stock portfolio with a historical 7% real annual rate of return can significantly increase the initial investment over a long period through compound interest, as illustrated by the formula 3,000(1+.07)40 = $44,923, showing nearly a fifteen-fold increase in 40 years. Stocks typically have a higher average return over time compared to bonds or savings accounts, balancing higher risks with potentially higher rewards. However, high risk does not inherently mean low return; it is possible for high-risk investments to yield high returns, but it is also essential to consider the likelihood of potential losses. Lisa should choose an investment that aligns with her risk tolerance, financial goals, and investment time horizon.