investments include selling short
Transcript, 2 minutes 38 seconds, for use during week of Dec.
Description: Penny, Susan, and Ira discuss derivatives and
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Ira: Penny, last time we talked we discussed alternative investments, specifically
short sales and hedging.
Penny: Yes, although alternative investments are for
advanced investors and people who employ investment advisors,
to know what they are as you plan your own investment goals.
Are there other alternative investments we should be aware of?
You may hear or read about derivatives, which cover many types
of investments. Derivatives
can take the form of contracts and are based on different types
Ira: So they’re called derivatives because they derive
their value from something else?
Penny: Exactly. The main types are futures, forwards,
options and swaps.
Susan: Can you give us an example?
Penny: Derivatives might be used by a farmer to sell his crop
at current prices with delivery when the crop is harvested. This
protects the farmer against a price drop but also limits gains
if the price increases.
Ira: So, like short sales, derivatives can carry a large risk?
Penny: Yes. And they’re generally not recommended for
small investors or those who are not well-informed.
Susan: Are there other alternative investments we should be
Penny: Collectibles, like gold, are often touted as a great
investment, but there are disadvantages. Gold involves
storage costs and doesn’t produce
any income as stocks and bonds do.
Ira: What about real estate?
Penny: That also can be considered an alternate investment. There
are several ways to invest in real estate--through owning real
estate, like your own home, owning rental units, or investing
in real estate investment trusts.
Susan: I’ve always been
told that owning your own home is a good investment.
Penny: Yes. It
can provide security and the interest paid on the mortgage is
deductible on your tax return. Rental units can also be
a good investment if you can do most of the maintenance and repairs
Ira: What about the real estate investment trusts? Are
those an option for investors like me or Susan?
recently many advisors did consider real estate investment trusts
a good choice. Currently, however, these REITs, as they’re
called, are probably not good investments for you until the market
Susan: Thank you, Penny. This is helpful.
welcome. And remember, for more information, visit
the ISU Extension website at extension.iastate.edu and look for ‘Invest