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Equity risk premium |
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Equity risk premiumThe concept that justifies investment in stocks, where your capital is at risk, rather than gilt-edged bonds which are as safe an investment as you can get and where your capital is not at risk provided you hold the bond til maturity.The theory goes that it is only worth investing in stocks if the return you get exceeds the return you could get on gilts - otherwise, why would you take on the extra risk? The difference in returns is known as the equity risk premium.Every historical analysis of returns achieved by stocks compared to bonds shows that stocks outperform bonds in the long term. This is why you repeatedly hear pundits say that the stock market, while risky in the short term, is not risky in the long term. The key thing, as a private investor, is to leave your money in the market for long enough for the long term benefit to eradicate the short term risk. Stick your money in the market for two months, and it might go down 20% if you are unlucky. Stick it in a well-diversified portfolio for 30 years, and it should produce returns that comfortably exceed what you could have got from bonds.Similar MatchesSingle Premium Deferred Annuity (SPDA)Single Premium Deferred Annuity (SPDA)An IRA-like annuity into which an investor makes a lump-sum payment that is invested in either a fixed-return instrument or a variable-return portfolio, which is taxed only when distributions are taken. Unamortized premiums on investmentsUnamortized premiums on investmentsThe unexpensed portion of the difference between the price paid for a security and its par value. Insurance premium taxInsurance premium taxA tax imposed on certain insurance premiums where the risk is located in the UK. Forward premiumForward premiumThe difference between a forward exchange rate and the spot exchange rate, expressed as an annualized percentage return on buying foreign currency spot and selling it forward. Call premiumCall premiumPremium in price above the par value of a bond or share of preferred stock that must be paid to holders to redeem the bond or share of preferred stock before its scheduled maturity date. Further Suggestionslife assurance premium reliefPremium income Waiver of premium Conversion premium High premium convertible debenture Fixed premium Tender offer premium Insurance premium Indemnity Guarantee Premium Single premium life insurance warrant premium Default premium insurance premium Risk premium approach Option premium single premium life insurance Premium bond waiver of premium Risk premium Term premiums Bond premium option premium Percentage premium Forward premium Risk premium |
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