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money, banking and finacial markectsConsiderate the investment returns to holding...

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ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted February 24, 2012 at 12:10 PM via web

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money, banking and finacial markects

Considerate the investment returns to holding stock. Which of the following will be more    valuable to you: Stock that rise in value when your income rises or stocks that rise I value when your income falls? Why?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted February 24, 2012 at 12:35 PM (Answer #2)

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Stocks that rise in value when your income falls would be more valuable.  The reason for this is that you would need them more.  When your income is rising, you won't rely so much on your investments.  But when income falls, investments are more important.

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readerofbooks | College Teacher | (Level 2) Educator Emeritus

Posted February 24, 2012 at 1:23 PM (Answer #3)

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This is an interesting question. It all really depends on how much you are talking about. If your stocks increase greatly while your income is going up and only go up a little when your income is going down, it would better to go with the greater increase in stock. If all things are equal, then it would be good to hedge yourself, that is, it would be good to have extra money when your income is going down.

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted February 24, 2012 at 2:01 PM (Answer #4)

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The stocks that rise in value whether your income rises or your income falls would be most valuable to you. If the value of your stocks rises when your income falls and falls when your income rises it would ensure that the amount you have with you remains the same irrespective of the change in your income. Stocks that rise in value when your income rises would be truly valuable if they do not fall in value when your income falls.

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litteacher8 | Middle School Teacher | (Level 1) Distinguished Educator

Posted February 24, 2012 at 2:14 PM (Answer #5)

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I have two thoughts on this.  When your income falls, you are likely to take your money out of the investment.  So stocks that rise when your income falls may not be good.  On the other hand, it's good to be diversified in that your job is in an entirely different sector than you are invested, so that if one fails you have something to fall back on.

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accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted February 24, 2012 at 2:29 PM (Answer #6)

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Clearly having stocks that rise in value when your income falls would be more useful as it would provide you with extra income when your main source of income falls. This would help support you through a lean economic period and help you to meet your basic living costs.

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vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted February 24, 2012 at 2:47 PM (Answer #7)

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I guess I agree with pohnpei and with accessteacher, although my understanding of financial matters is fairly primitive.  If I were in the position you describe, I would want to have stocks rising if my income fell and would not care so much about stocks rising if my income was also rising.

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stolperia | (Level 1) Educator Emeritus

Posted February 25, 2012 at 3:16 AM (Answer #8)

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As has been explained in previous posts, there are a variety of considerations that interrelate - your question is not as easily answered as it might appear on the surface.

Obviously, if my income was falling, the most valuable investment would be stocks that were yielding increasing dividends to help offset the loss of other income.

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brettd | High School Teacher | (Level 2) Educator Emeritus

Posted February 25, 2012 at 5:31 AM (Answer #9)

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There are also tax considerations, and you might be more likely to sell stocks when your income falls not just because you need the money but because there is less tax penalty if your overall gross income is lower.  You might also consider converting them to preferred stocks or other investment classes that generate income while you hold on to them.

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belarafon | High School Teacher | (Level 2) Educator Emeritus

Posted February 25, 2012 at 2:22 PM (Answer #10)

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I'm with #2; low income means you need every source possible, and rising stocks mean higher dividends. While your tax burden might be higher at the end of the year, you don't have to worry about day-to-day until then, and you have time to make other plans or arrangements.

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ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted February 25, 2012 at 11:25 PM (Answer #11)

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Stocks that rise in value when your income falls would be more valuable.  The reason for this is that you would need them more.  When your income is rising, you won't rely so much on your investments.  But when income falls, investments are more important.

Thanks for your post, it being very helpful for me to have an understanding on the book and to be able to implemente into that questions. this was a very hard question for because, I still don't really understand to much about stocks hopefully with your help and some of my note this question will be a great anwser in my assigment.  

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