Fin 320 Investments

Define Investments

The commitment of funds to one or more assets that will be held over some future period in order to produce income and wealth

What is the equation for wealth?

Wealth = Assets - Liabilities

What are some examples of investments?

Stocks, bonds, ETFs, derivatives (financial assets)

Real assets (property, art collection, machines)

Cryptocurrencies

Define liquidity

The relative easiness of transforming an asset into cash without losing the original capital of the asset

By how much has advisory relationships grown from 2015 to 2024?

Grew from approximately $150 bil (2015) to $260 bil (2024)

What percentage was wealth gains in 2022?

37-39% above expectations-sharp change since 2016.

What was the driver of wealth growth in 2022?

The bulker of growth came from real estate. There was an increased value of housing assets. Homeownership rate jumped 7% (53.5-60.5%) for those born in 1980.

How much did homeownership increase for those born in 1990?

It increased by 11%.

Will the financial growth millennials and gen z received in 2022 continue?

No.

1) Inflation and high interest rates

2) Phantom wealth: A large sum of networth is in the form of illiquid assets such as appreciating homes and retirement accounts.

According to Census as of 2020 over _____ of Baby Boomers and _____ of Millenials have _____ savings at all.

40%, 50%, no retirement

Define Security/Financial instrument

A claim on the issuer’s/seller’s future income or assets by the holder/buyer

How do you calculate the total return?

Yield + capital gain

What do the average annual returns do?

They show the central tendency of a return distribution over time

How do you calculate the weighted average return?

p1 R1 + p2 R2 … pn Rn

Define annual growth rate

Measures the actual average return of a certain period when there is compounding.W

What is the equation for annual growth rate?

(R_G ) ̅=[(1+R₁ )(1+R₂ )…]^(1/n)-1=x_geo-1

Define arithmetic mean

The average over single period returns. Useful for investors who rebalance their portfolios with a fixed size investment

Define growth rate

Annual growth rate of an investment that is compounding, thus useful for investors who “hold and buy”

Assuming you invested $1 in S&P 500 in 1990 and sold at end of 1999. What were your portfolio return be?