Homework answers / question archive / Purpose of Project 3 The purpose of the project is to create a viable, back-tested retirement investment portfolio, and to gain more experience analyzing the exponential consequences of compound interest

Purpose of Project 3 The purpose of the project is to create a viable, back-tested retirement investment portfolio, and to gain more experience analyzing the exponential consequences of compound interest

Economics

Share With

Purpose of Project 3 The purpose of the project is to create a viable, back-tested retirement investment portfolio, and to gain more experience analyzing the exponential consequences of compound interest. This should give students a deeper understanding of the investments that they might make in the near future as they begin their careers. The student will be responsible for the creation of a spreadsheet in Microsoft Excel where they will estimate the returns from two retirement paths. Once the table of estimated returns has been created, students will analyze, discuss, and defend the results in a Word Document using the tools we will be discussing in class. Both the Spreadsheet and the Word document must be submitted together on the due date by uploading both to Blackboard. Unlike the previous two projects, the weblinks to the components of the project do not carry forward the information of the student inputs. Instead of weblinks, the student will need to save as a .pdf file their correlation table and their back-tested portfolio. Steps of Project 3 Understanding Your Risk Tolerance – Use a risk assessment survey, such as this one from the University of Missouri: https://pfp.missouri.edu/research/investment-risk-tolerance-assessment/. Discuss the results, do you agree with the survey? Choosing the account type – What is the difference between an IRA and a Roth IRA. Which do you think is better for you given your age and your income from the career path calculated in project 1. Choosing the Investments in the Portfolio – What is the difference between ETFs, Mutual Funds, and individual stocks and bonds? In which cases do find it to be worthwhile to pay the management costs of Mutual Funds? Use an asset correlation tool, link will be provided. Are there any industries which you would not invest in due to ethical concerns such as tobacco or petroleum? Create a portfolio with 10 investments, these can be individual stocks, bonds, mutual funds, and or ETFs. Create a Back-Tested Portfolio – Create a back tested portfolio, link will be provided. How did your portfolio behave during the Global Financial Crisis. You may have to limit your portfolio to investments that are old enough. Discuss the results. What is the average annual rate of return? What is the average annual rate of return if you include annual automatic rebalancing? Explain what rebalancing is and how much it changes the return on your portfolio. Links to the backtest portfolio page do not copy your report. Print your Back Tested Portfolio as a pdf and upload it with your project. Survivor Bias – What is Survivor Bias? Do you think the return your portfolio generates is reasonable? Time Horizon – At what age do you want to retire? Use this age as the last year you will contribute to your chosen investment account. Spreadsheet – Saving the maximum amount each year into either an IRA or a Roth IRA and growing at the annual rate calculated in the back-tested portfolio, adjusted for survivor bias, create two different paths to retirement. The first path starts contributing the maximum each year to their retirement account in the first year after graduation. The second path starts contributing the maximum each year starting at age 35, thirty years before the standard retirement age of 65. Discuss the difference between the two paths. Is it possible to save for retirement given your projected salary and saving for a down payment for the purchase of a home from projects 1 and 2? Analyze, Consider, Discuss – What is the difference in your retirement savings accumulation from starting immediately after graduation versus waiting until after your salary has grown? How much monthly income can this portfolio generate for your retirement? Do you believe you can tolerate the risk level in your portfolio? You chose investments based on historical correlation, do you believe that they will have similar correlations in the future? It should represent a substantial amount of work, but the final Word Document does not need to be overly long. The analysis (not including the links to data sources) could fit on a single page, but should probably take two to three pages. The efficiency of the presentation of the results is important in a professional setting, but so is the thoroughness of the analysis.