What Gives Money Real Growth

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Are you conservative or aggressive? No, we’re not talking about your driving. In the investment world, these words describe how much you stand to gain or lose when it comes to your investments and your portfolio. The more conservative your investments, the steadier your returns will be, while a portfolio that’s more aggressive is apt to experience more of a roller coaster effect, typified by higher highs, but potentially lower lows.

Let’s look deeper into how the two ends of the spectrum work to help determine what investment strategy might be best for you.

What is a conservative portfolio?

Someone who is investing conservatively is aiming to preserve their principal (that is, their current funds) and prioritizes that over maximizing returns. Typically this investor has a risk tolerance that is relatively low. In other words, they are willing to give up potentially high returns for more stable returns, and consequently understand that they also are unlikely to experience dips that could make them queasy.

Often people choose a more conservative portfolio when their time horizon is relatively short. Time horizon refers to how soon you need the money, and a shorter period indicates that an investor is intending to tap their account sooner rather than later. In that case, any stock market fluctuations could bite into their nest egg, while not giving ample time for it to rise back to where it was.

What Gives Money Real Growth Bonds

While history shows that the stock market eventually recovers and returns gains to investors’ portfolios, someone with a shorter time horizon may not have the capacity to wait for it to go back up. That’s why a more conservative portfolio is important as it gives them the security that they are less likely to suffer huge losses and wipe out all the money they have saved.

Typically a conservative portfolio is composed of safer investments, such as cash and bonds, rather than stocks, which are considered riskier since companies and industries can fall in and out of favor. If a conservative portfolio includes stocks, they tend to be large, well-known, stable companies—what are known as “blue chip stocks”—which are less likely to experience wild market swings.

As an example, here is what an investor would find in Acorns’ conservative portfolio:

  • 40% short-term government bonds

  • 40% ultra short-term corporate bonds

  • 20% ultra short-term government bonds

The Acorns moderately conservative portfolio includes:

  • 24% large company stocks

  • 4% small company stocks

  • 4% real estate stocks

  • 30% government bonds

  • 30% corporate bonds

  • 8% international large company stocks

A conservative portfolio is most appropriate for an older investor who wants to keep their capital intact as they near retirement. It’s also a smart strategy for a parent to tweak their investments in a college education account to be more conservative as a child enters high school, as they will need to start withdrawing the funds within the next four years. These scenarios illustrate the importance of a more conservative portfolio, where available funds are less likely to be devastated by an untimely stock market plummet.

What is an aggressive portfolio?

The expression “no pain, no gain” is an apt way to consider someone who wants an aggressive portfolio—one that is focused on growth, growth, growth. This type of investor demonstrates a high risk tolerance: They’re not afraid of market fluctuations because they are confident that what goes down will eventually go up—helping them realize new gains during the upswing.

The key word to note is “eventually,” as a down market can take a while to recover, which can be a disaster for someone who needs their money right away. That’s why an aggressive portfolio requires a longer time horizon in order for the investor to have ample time to accommodate those dips as needed.

An aggressive portfolio is ideal for someone who is just starting out and wants to build their nest egg over time. By beginning with a more aggressive outlook, they are more likely to realize larger gains and thus have more time for compounding to work—where your investments generate returns and (in many cases) dividends, which results in a higher amount that then has a chance to earn even more returns. Over time, this phenomena can greatly bolster your portfolio.

An aggressive portfolio is more likely to include newer or less-proven companies or industries which have the capacity to realize large gains, but also potentially commensurate losses.

Here’s what you’ll find in Acorns’ aggressive portfolio:

  • 40% large company stocks

  • 20% small company stocks

  • 10% emerging market stocks

  • 10% real estate stocks

  • 20% international large company stocks:

And Acorns’ moderately aggressive portfolio includes:

  • 38% large company stocks

  • 14% small company stocks

  • 4% emerging market stocks

  • 8% real estate stocks

  • 10% government bonds

  • 10% corporate bonds

  • 16% international large company stocks

What Gives Money Real Growth Rates

Someone who is investing in an aggressive portfolio is more liable to need to rebalance their portfolio regularly since high growth in one area can knock the others out of whack and thus leave you with a portfolio that’s not aligned to your initial goals.

That’s one reason why using a “robo-advisor” such as Acorns can be a smart strategy. On a quarterly basis, Acorns will double-check whether any individual holding in your account has increased or decreased significantly from the original weighting. If so we will buy and sell the exchange-traded funds (ETFs) as needed to get back to that initial allocation.

How do you know which investing approach is right for you?

Investing can feel scary because the consequences of choosing wrong can spell the difference between an account that’s flush to provide amply for the golden years or one that’s a little more lean. While you don’t want to give up gains, you also don’t want to sacrifice principal, depending on your life stage.

As mentioned, there are key factors that will indicate which strategy is best for you.

A conservative portfolio is more appropriate for someone who has:

  • A lower risk tolerance

  • A shorter time horizon (typically considered less than three years, but could be shorter in the case of a goal like saving for a down payment)

  • A desire for steady returns that prioritize preserving capital

An aggressive portfolio is more appropriate for someone who has:

  • A higher risk tolerance

  • A longer time horizon (more than three years, with the most aggressive accounts typically held for at least 10 years)

  • An appetite for higher returns

Naturally, your needs are going to change over time. For example, market conditions might be making you uncomfortable or you may be nearing a milestone such as college or retirement and prefer to shift into preservation rather than growth mode.

It’s important to keep a watchful eye on your portfolio and check in regularly so you can recognize changing needs and move your nest egg into whatever investment vehicles are appropriate for your current situation.

Money Growth Definition

Taking control of your financial future with prudent investments and being mindful of the pros and cons of conservative or aggressive portfolios can help put you on the road to the strategy that’s right for you.

Investing involves risk including loss of principal. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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What Gives Money Real Growth Rate

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The real GDP growth rate shows the percentage change in a country’s real GDP over time, typically from one year to the next. That means it measures by how much the economic output, adjusted for inflation, increases or decreases over a year. It can be calculated using the following formula:

Real GDP Growth Rate = [(final GDP – initial GDP)/initial GDP] x 100

In the following paragraphs, we will take a closer look at each of those components and learn how to calculate real GDP growth rates step-by-step.

1) Find the Real GDP for Two Consecutive Periods

To calculate a country’s real GDP growth rate, the first thing we need to do is find the real GDP values for two consecutive periods. In exams and quizzes, these values will often be provided along with the question. If that’s not the case, you may have to calculate GDP first by using the income approach or the expenditure approach. Please also note that you may have to divide nominal GDP values by the GDP deflator to find the real GDP.

Another way to find GDP values is to collect the data from reliable government or international resources. In the US, the Bureau of Economic Analysis (BEA) provides data on regional and national GDP on a quarterly basis. In addition to that, the World Bank maintains a comprehensive free and open database where you can find (among many other things) the real GDP of most countries worldwide.

What gives money real growth bonds

For example, let’s say we want to calculate the real GDP growth rate of the United States between 2017 and 2018. To do this, we can use the World Bank’s list of global GDP at constant 2010 USD. This list provides real GDP data because all values are reported using 2010 USD prices, which eliminates the effects of inflation. Hence, according to that list, the real GDP values we are looking for are USD 17,844 trillion for 2018, and USD 17,349 trillion for 2017.

2) Calculate the Change in GDP

Once we know the real GDP values for two consecutive periods, we need to compute the change in GDP between the two periods. That means, we have to subtract the new GDP from the old GDP (i.e., final GDP – initial GDP). The result of this subtraction will be positive if GDP increases (i.e., positive growth), and negative if it decreases (i.e., negative growth).

In the case of our example, the final GDP is USD 17,844 trillion, and the initial GDP is USD 17,349 trillion. That means the change in real GDP from 2017 to 2018 is USD 495 billion (i.e., 17,844 trillion – 17,349 trillion). Note that the value is positive because the economic output increased from 2017 to 2018.

3) Divide the Change in GDP by the Initial GDP

After calculating the change in GDP, the next step is to divide it by the initial GDP (i.e., change in GDP / initial GDP). This gives us the actual growth rate of the economic output in relation to the base year. Depending on whether the change in GDP calculated above is negative or positive, the result of this step will have the same plus/minus sign.

Growth Money Market

Going back to our example, we have computed the change in GDP as USD 495 billion (i.e., 0.495 trillion), and we know that the initial GDP is USD 17.349 trillion. Thus, the growth rate is 0.0285 (i.e., 0.495 trillion / 17,349 trillion).

4) Multiply the Result by 100 (Optional)

Finally, to convert the growth rate into a percentage, we can multiply the result by 100. This makes it easier to interpret and compare the result, which is why most institutions and news outlets report GDP growth rates this way.

The growth rate we calculated in our example (0.0285) multiplied by 100 is 2.85. Thus, we can say that from 2017 to 2018, the real GDP of the United States increased by 2.85%. Similarly, we can now calculate the real GDP growth rate for any other period.

In a Nutshell

The real GDP growth rate shows the percentage change in a country’s real GDP over time, typically from one year to the next. It can be calculated by (1) finding real GDP for two consecutive periods, (2) calculating the change in GDP between the two periods, (3) dividing the change in GDP by the initial GDP, and (4) multiplying the result by 100 to get a percentage.