Finance

Historical Rates of Return Background and Market Institutions

The subject of investments is so interesting that I first want to give you a quick tour, instead of laying all the foundations first and showing you the evidence later. I will give you a glimpse of the world of historical returns on the three main asset classes of stocks, bonds, and 'cash," so that you can visualize the main patterns that matter—patterns of risk, reward, and co variation.

This chapter also describes a number of important institutions that allow investors to trade equities.

Let's look into the institutional arrangements for equity trading. After all, from our corporate perspective, stocks are more interesting than many other financial instruments, such as foreign government bonds, even if there is more money in foreign government bonds than in corporate equity.

Savings for some future event, at its most basic level, is the disciplined act is putting money in some vehicle that will give a return on one’s investment. It can be as simple as a savings passbook account or CD, or as complex as bonds, notes and mortgages. The more complex the vehicle, the more the return and risk vary.

It’s been said that death and taxes are the only certain things in life. Income tax – on all levels – is the government’s chief means of generating revenue. It is also the most complex of all subjects, due to confusing law verbiage and the vastness of the Internal Revenue Service Code which never seems to decrease in volume.

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