How Do I Invest My Inheritance?
Hi, Owen, what did you want to discuss today?
Hi, Reika. I wanted to get your advice on something. I've just received an [vocab word=inheritance]inheritance[/vocab] of $130,000. After paying off my student loan, I still have $100,000 left. I’ve been thinking about investing or saving it, but I'm [vocab word=unsure]unsure[/vocab] of the best route to take.
An inheritance is money that your mom or dad (or another relative) leaves you when they die.
"the best route to take" means the best thing to do.
I'm glad you set up an [vocab word=appointment]appointment[/vocab] with me. Investing your money could provide higher [vocab word=return]returns[/vocab] than simply saving it in a bank. But, the [vocab word=trade-off]trade-off[/vocab] is that it usually carries more risks. Every investment has risks, but the [vocab word=degree]degree[/vocab] of the risk is different.
"than simply saving it in a bank" uses "than" + -ing verb pattern. You can put a gerund phrase (-ing verb + other word) after "than" in a comparative sentence.
Taking risks scares me a bit.
Investing can be riskier than saving, as the value of your investments can [vocab word=fluctuate]fluctuate[/vocab]. However, good investments can give you much higher return than just saving your money in a [vocab word=savings account]savings account[/vocab].
"Investing can be riskier than saving" uses the pattern of "than" + gerund phrase (-ing verb + other words).
Is there an investment option that gives you better returns than a savings account but also comes with [vocab word=zero]zero[/vocab] risk?
A GIC, which stands for Guaranteed Investment Certificate, is safer than investing in stocks or ETFs. Well, it pretty much guarantees the [vocab word=principal]principal[/vocab], so it has zero risks.
Principal is the original money that you invest. The Interest is what you earn from the investment.
For example, if you earn 1% interest from a principal of $2000, you get an interest of $20.
How much [vocab word=interest]interest[/vocab] do I get from a typical GIC?
Currently, major banks are offering 3 to 4 [vocab word=percent]percent[/vocab] per year.
In 1 year, you get 3 to 4% of your principal.
That's more than what I [vocab word=anticipate]anticipated[/vocab].
After "than", we are placing a noun clause ("what I anticipated").
(11) Financial Advisor:
Don’t [vocab word=discount]discount[/vocab] [vocab word=mutual fund]mutual funds[/vocab] and stocks. Historically, they offer more returns on investment than GICs do.
"They offer more returns on investment than GICs do." - there is a dependent clause ("GICs do") after "than". Note that this dependent clause is short, with just the subject ("GICs") and verb ("do").
I understand. What would you say is easier to manage: mutual funds or stocks?
(13) Financial Advisor:
For [vocab word=novice]novice[/vocab] investors, mutual funds can often be a simpler option than managing [vocab word=individual]individual[/vocab] stocks. With mutual funds, the portfolio is managed by professional investors. You can also get better [vocab word=diversification]diversification[/vocab] from a mutual fund than from individual stocks.
In the last sentence, you are comparing "diversification from a mutual fund" with "diversification from individual stocks".
Is there a disadvantage in owning a mutual fund?
(15) Financial Advisor:
Well, like any investment, there are trade-offs. Although mutual funds offer more diversification than investing in individual stocks, they also tend to have higher [vocab word=fee]fees[/vocab]. An [vocab word=alternative]alternative[/vocab] is an ETF, or Exchange-Traded Fund.
(17) Financial Advisor:
ETFs are similar to mutual funds, but they can be bought and sold throughout the day like individual stocks. An ETF can contain various types of stocks such as utility stocks, financial stocks, and technology stocks.
You can buy or sell ETFs by yourself just like a stock, but the price of an ETF is based on many stocks. Owning a share of ETF is like owning many small pieces of stocks.
(19) Financial Advisor:
Some ETFs move with the [vocab word=stock index]stock index[/vocab]. For example, an S&P 500 ETF will [vocab word=mirror]mirror[/vocab] the performance of the S&P 500 Index because it contains the same kind of stocks as the S&P 500. If S&P 500 goes up, the ETF goes up. If S&P goes down, the ETF goes down.
Owning an S&P 500 ETF is like owning a bunch of stocks in S&P 500.
(21) Financial Advisor:
Exactly. The most important thing is to diversify your portfolio. Don't put all your eggs in one basket. Spread your investment across different options. It's less risky than investing everything in one type of [vocab word=asset]asset[/vocab].
"Don't put all eggs in one basket" is a very famous idiom for investment. Basically, it means you should never just buy 1 kind of investment. If that investment fails, you would lose all of your money.
"less risky" is a comparative adjective. "Less" - (adjective) talks about smaller degree of something and "More" - (adjective) talks about bigger degree of something.
I got it. GIC is the safest but it might offer less returns. Mutual funds and ETFs can offer higher returns and they help you diversify your portfolio, but they come with risks. Am I right?
(23) Financial Advisor:
That's right.
I'll have to think about my options more.
(25) Financial Advisor:
Take your time. I'll send you an email that [vocab word=describe]describes[/vocab] all these investment options. When you are ready, we'll take a look at our buying options.
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