Monday 622

 



Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 9 The Real Economy in the Long Run
Chapter 27 of 36 Basic Tools of Finance
Section 9 of 15
...
Figure 3 – The Trade-off between Risk and Return
When people increase the percentage of their savings invested in stocks they increase the average return they can expect but they also increase their short-run risks.
…
Here we consider three aspects of risk aversion
1· insurance markets
2· diversification
3· risk-return trade-off
…
3-Risk-return trade-off
In financial decisions, the most relevant trade-off is between risk and return.
There are short-run risks inherent in holding stocks, even when the portfolio is diversified.
Risk-averse people are willing to accept these risks because they are compensated in the long-run for taking them.
Over long periods of time stocks have given much higher return rates than other financial assets, including bonds and bank certificates of deposit.
Over the past two hundred years
· stocks yielded an average real (after inflation) return of about 8% per year
· short-term government bonds yielded an average real return of only about 3% per year
People have to decide how much short-run risk they are willing to accept with their savings to earn a higher return.
…
Figure 3 illustrates the risk-return trade-off for someone choosing allocation of their portfolio between two asset classes.
The first asset class is stocks.
An investment portfolio with 100% of diversified stocks has much risk in the short run, but over the long run will typically yield an average annual return of 8%.
The second asset class is government bonds or a bank savings account, “No stocks” on Figure 3.
It has little or no risk in the short run, but over the long run will typically yield a smaller average annual return of 3%.
Each point in Figure 3 represents a different portfolio allocation between risky stocks less risky bonds and savings account.
It shows the more a person puts into stocks the greater is both the average return and short-run risk.
The choice of a particular combination of risk and return depends on a person's risk aversion which reflects a person's preferences.
…
See Figure C for comparison results of:
-Dow 30 stocks ETF DIA
-government bonds ETF IEF
-from January 1, 2005 to June 22, 2026
Grok:
Over the approximately 21.5 years from January 2005 to June 2026, DIA (Dow 30 ETF) delivered substantially stronger growth than IEF (7-10 Year Treasury Bond ETF).
-DIA compounded at roughly 9.9% annually, turning a $1 investment into about $7.60 for a total gain of approximately 660%.
-IEF grew at a compound annual rate of about 3.1%, turning $1 into roughly $1.94 for a total increase of around 93%.
… …
they gained money in the stock market
karera kabushiki ichiba de okane o eta
彼ら株式市場でお金を得た

Comments

Post a Comment

Popular posts from this blog

  From article What 10 Years of U.S. Meddling in Ukraine Have Wrought (Spoiler alert: Not democracy). Aaron Mate. April 30, 2024. Section 2. Seeking to capitalize on the unrest in Ukraine in 2013, U.S. figures including State Department official Victoria Nuland, Republican Sen. John McCain, and Democratic Sen. Chris Murphy visited Maidan Square. In a show of support for the movement’s hardline faction, which went beyond supporting the EU trade deal to demand Yanukovych’s ouster, the trio met privately with Tyahnybok and appeared with him on stage. The senators’ mission, Murphy said, was to “bring about a peaceful transition in ukraine.” … The Maidan Movement’s most significant U.S. endorsement came from then-Vice President Joe Biden. “Nothing would have greater impact for securing our interests and the world’s interests in Europe than to see a democratic, prosperous, and independent Ukraine in the region,” Biden said. According to Andrii Telizhenko, a former Ukrainian...
Read more
Image
  List of U.S. websites China blocks. Google search: Many international news websites, such as the BBC, CNN, the Wall Street Journal, TIME, the Financial Times, Reuters, and the New York Times are banned. Most Western social media apps – including Facebook, X (formerly Twitter), Instagram, Snapchat, Reddit, AO3, Tumblr, and Pinterest – are blocked in China.
Read more
  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 1 Introduction Chapter 1 of 36 Ten Principles of Economics Section 2 of 14 … Like a household, a society faces many decisions. A society must find a way to decide what jobs will be done and who will do them. It needs some people to grow food, other people to make clothing, and others to design computer software. Once society has allocated people, as well as land, buildings, and machines to various jobs it must also allocate the output of goods (and services) they produce. It must decide who will eat caviar and who will eat potatoes. It must decide who will drive a Ferrari and who will ride the bus. … Because resources are scarce the management of society's resources is important. Scarcity means society has limited resources and cannot produce all the goods people want. Just as each member of a household cannot get everything they want each individual in a society cannot attain the highest standard of l...
Read more