The definition of personal finance is often defined as being the application of financial principles within an individual or family unit. Such application includes: budgeting, saving, spending, and assessing risks. Evidently, such financial management is of great importance. Therefore, in this paper, I will provide an overview of an individual’s personal finances by referencing their investment style and briefly stating their financial objective. In addition, I will provide some recommendations said individual should consider with the purpose of aligning their investment choices with their overall financial goal. Let’s us start off by discussing some facts that were provided by the individual who we will hereby address as Joe. Joe is in …show more content…
Now, let us calculate what his investment style will amount to if he were to continue making the same investment choices until retirement. To start off, we can see that Joe is not a risky investor; he has only invested into individual accounts, certificate of deposits, and his 401k. In addition, he saves an average of 10% of each paycheck (which we will assume to be $5,000 annually based on a $50,000 median household income). As noted earlier, his primary objective is to retire on annual income of $50,000. We can assume then that his goal is to save approximately $1,250,000 . Therefore, if Joe continues to invest $5,000 annually ($416.67 monthly) into his saving account for the next 25 years, his investment, assuming a current balance of $5,000 compounded daily at 0.01% (as currently being offered by WellsFargo), will amount to about $130,170 . Now, Joe has also invested in certificate of deposits (CDs). He reported as simply been reinvesting his original $5,000 for the past six years. Assuming a stated 0.30% interest rate on a two year CD with daily compounding, his $5,000 investment is now worth about $5,091 . However, he seeks to reinvest this until retirement. Performing similar calculations, we obtain a grand total of $5,488 . This is what his CD invest would amount to if he were to reinvest the current $5,091 at a 0.30% interest rate with daily compounding for the next 25 years. Now, let us proceed to examining his 401k contributions. Joe
Basics: age & income & specific responsibilities in life matter in the mix of assets in one’s portfolio.
These decisions may include selling and buying of stocks, bonds, futures, currencies and so on. Stocktrak.com helps to implement the investment decision process as it includes evaluation tools for securities being traded at stock market. The website provides graphical historical performance of stock prices and this graphical performance can be analyzed for making different investment decisions related to those stocks. This project will be investing the given specified amount in a portfolio. The portfolio investment will help to reduce the level of risk associated with investment. With the reduction in level of risk, the average return of portfolio investment will increase as compare to individual investments. Thus, portfolio investment is better option for investment as compare to individual
c. Smaller payments mean more time in debt. d. Your lower interest loans also get rolled into the deal so you end up with minimal savings.
The goal of this course is to get you thinking about personal finance issues at a point in your life when you still have time to benefit from the power of time in generating wealth to accomplish your other life goals. The financial decisions you make early in life with determine in great extent the quality of life you will enjoy later, especially given the turbulent and uncertain economic conditions. Money isn’t everything, but a lack of it will impact almost every aspect of your life and those who surround you.
Most would stick to the basic 401k retirement plan which would be the extent of their investments. Saving money is important once income is starting to be earned yet investing money can be a scary thought but in reality, it is fairly painless. We do not want to be in our forties and realize investing and saving now will help in the future. Yes, there still will be another 20 years of working but imagine if we all started at the age of our 20s. There would be an extra 20 years added to our retirement or better yet, if we were smart with our investments, then we could retire much earlier than expected. Let’s say for instance that we invest about $10 a week with an average 8% percent return. Within a year, we would have $562. Within 5 years, we would have $3,295. Within 10 years, we would have $8,136. It is only investing $10 a week but if we were to invest more imagine the outcome for the return. Investment is one of the most, if not the most, effective way to get rich. 401k retirement plan is the most common way to retire. Start contributing at the age of 25 to be able to take out money at age of 60. If we were to contribute about $5,000 a year without employer match then it could lead up to close to million dollars. Yet if the employer was able to match it $1 for $1, then it will come close to 2 million dollars. That is a huge difference and one of the best ways to retire. Only
One of the negative externalities of the Federal Reserve's zero interest rate policy to stimulate lending and borrowing has been the effect on savers and investors throughout the economic landscape. Historically low rates on CD's, bonds, and treasuries have forced investors to take on more risk in order to meet their required return on investment. Amidst this backdrop Granny Smith has a difficult task ahead of her in saving for her grandchild's college education. Financially savvy, Granny Smith has scoured the internet and found a five year CD at Ally Bank paying 1.72 percent (Bank Rate.com. 2012. PP. 1). She is reluctant to tie up her money for longer than five years given that the stated rate is actually below inflation, which in effect provides her a negative real rate of return. However, she cannot take the risk of losing her $25,000 capital in the stock market, so even if this return over the next five years is the best she can get, that will at least ensure she will have not lost principal.
a. How much must be invested today in a CD paying 8.4 percent annual interest in order to
Many professionals, young and old, are looking at investing their money in different areas. Some would choose investing on a start-up or banking it all on mutual funds. But there is one way people can invest their money for the “Betterment.”
Your final project will integrate what you have learned throughout the course into the core elements of a financial plan. Although not comprehensive, and in fact only the beginning of what should be a living document, this project will allow you time to organize and reflect on key areas of personal finances that you will need to address throughout your financial life cycle.
In the United States, a society plagued by capitalism, investing has become a way of life. To most Americans it begins with opening a savings account and slowly allowing that money to grow through the compounded interest rate over the years. While it may not seem like a big step in generating more income, nonetheless, this is a positive movement in the market of investments. With the many types of investments available knowing which are reliable, or safe, or yield good returns, are just some of the questions on the investors mind. Within each asset class there are investments to suit different kinds of risk, duration, returns and liquidity.
Financial Editor Adam O’Daniel reported on the Charlotte Business Journal about Prudential pulling a Retirement Challenge stunt at the NASCAR Hall of Fame Courtyard in Charlotte, N.C. “The company toppled a 30-foot-tall domino stone, beginning with just a normal-size domino, to illustrate the long-term outcome of systematic retirement investing. The stunt involved Harvard professor and best-selling author Dan Gilbert asking bystanders how much money they had in their pockets. He then calculated how much that amount, $45 in one example, would grow into if saved on a weekly or monthly basis. ‘We are our own worst enemy when it comes to saving,’ Prudential VP of Advertising Colin McConnell told me before the dominos fell. ‘We have this
After retirement, she wants to live a life style that will cost about $35,000 per year, payable at the beginning of each year. Her planning horizon is 30 years (i.e. she does not expect to live longer than age 95). Assume the rate of interest is 5%, all investments are made at the end of the year, and all expenses are payable at the beginning of the year. (a) How much money will she have when she retires at 65? (4 marks) (b) How much money does she need at age 65 to support her post-retirement years? (4 marks) (c) If her post-retirement expenses start as stated above at $35,000 per year but increase at the expected rate of inflation of 2% per year, how much money does she need at age 65 to support her retirement? (5 marks) (d) To reach the amount found in part (c) she is planning to invest $X this year, and increases this amount every year at the rate of 3% per year, what is this amount X? (5 marks) Answer (a) She will have FV = PMT x FVAF(5%, 40 years) = $603,998.87 (b) She will need PV of Annuity Due: PV = PMT x PVAF(5%, 30 years) x (1.05) = $564,937.58 (c) She will need PV of Growth Annuity Due: PV = [(35,000)(1.05)/(5% - 2%)] x [1 - (1.02/1.05)30] = $711,592.43 (d) She needs to have the amount calculated in (c), i.e. $711,592.43: [(X)/(.05-.03)] x [(1.05)40 - (1.03)40] = 711,592.43 X = $3,767.08
According to our class text (Siegel and Yacht (2009)), we know that “personal finance is the process of paying for or financing a life and a way of living.” That said, we also know that using accounting principles to manage our personal finances will likely yield great success in one’s tracking and planning, financially, in the long run.
Learning about money management started at home with my mother. We save throughout the year for Christmas by depositing loose change into a jar. Our savings determine what new electronics are within grasp Christmas. This taught me to become actively involved in determining how I would like to spend my money. I always research the best bargains so that this money can buy the various items I desire at an acceptable price.