Money - PFP Assignments

1. What is your investment risk profile? Take this quick five-question quiz (from, an investment manager):

1. How would you describe your investment experience?
A. Below Average (1 point)
B. Average (3 points)
C. Above Average (7 points)

2. Earning a high total return that allows my invested capital to grow faster than the inflation rate is one of my most important investment objectives.
A. Strongly Disagree (1 point)
B. Disagree (3 points)
C. Neutral (4 points)
D. Agree (5 points)
E. Strongly Agree (7 points)

3. I am willing to accept a potential short-term loss in return for a potentially higher long-term return.
A. Strongly Disagree (1 point)
B. Disagree (3 points)
C. Neutral ( 4 points)
D. Agree (5 points)
E. Strongly Agree (7 points)

4. What is your primary investment goal?
A. Avoid loss of initial investment value; current income is very important (1 point)
B. Stable return on investment while preserving most of my invested capital (3 points)
C. Obtain modest growth (5 points)
D. Maximize growth by obtaining highest total return on investment; current income is not a factor (7 points)

5. Which statement describes most accurately your tolerance for investment risk?
A. I am not willing ot accept any loss in portfolio value in order to achieve my investment goals (1 point)
B. I can accept some declines in value in order to achieve my investment goals (4 points)
C. I am willing to accept substantial declines in portfolio value in order to achieve my investment goals (7 points)

Mark your response to each question above (by bolding the answer you chose). Then add up your points from all five questions. Using this Scoring Key (Conservative = 5-15 points; Moderate = 16-24 points; Aggressive = 25-35 points),which word (conservative, moderate, or aggressive) best describes your current investment risk tolerance? A good investment advisor will help you manage your investments (401k's, IRA's, etc.) very differently based on your investment experience and risk tolerance. (total quiz points and risk tolerance word)
Write here...

2. There are three common investor types: 
Value Investors buy stock incompanies that maximize long-term stock price growth, or steady income or dividends. They are primarily concerned with growing their investments, not using their investments to "change the world" by accelerating either social responsibility or innovation.
Social Responsibility Investors buy stock in companies whose average economic return is usually at least a little bit lower than value companies because they also deliver significant environmental and social benefits along with economic value.
 Risk Investors buy stock incompanies whose average economic return is usually at least a little bit lower than value companies because they also deliver significantly greater innovation, experimentation, and risk, including a chance for bigger financial gains (or losses) in the short-term.

Investor risk tolerance (whether you are conservative, moderate, or aggressive) is not the same thing as investor type (what you want your investments to do for you and the world), but these two are related. Value investors are usually conservative, although they often also do some fraction (like 10-20%) of risky investments (that they are betting will turn out to be good value). Likewise, risk investors are all by definition aggressive (betting on lower probability, higher payouts), although they usually also do some fraction (like 10-20%) of investments in ways they think are conservative (low risk). Social responsibility investors are usually more conservative than aggressive, but there are exceptions (people who try to "change the world" by funding many risky, socially beneficial startup companies). You can find investment advisors who are experts in each of these three types of investing, and funds dedicated to these different approaches as well.

If you had anywhere from $2,000 to $200,000 to put into an investment fund for your personal future over the next ten years, and you could put this money in any of three funds (a Value fund, a Social Responsibility fund, and a Risk fund) as well make individual investments of your choice, what percentage of your money would you presently seek to place into each of these three categories? Give at least a sentence "explaining" your choice to anyone who wants to understand your decision better. (1-3 percentages and 1+ sentences)
Write here...

3. From the "Career Goals" wiki page, copy your response to Question 5 below:
Now do an educated guess: what kind of annual salary should you have around mid-life (45 yrs old)? How much money do you think you should have in your savings at mid-life, for use in your later years? 
[Reference: The average U.S. 50 year old has only $40,000 in savings/net worth, ten times less than the 
$400,000 recommended as a bare minimum to supplement to your social security when you retire, which is typically at 65 or 70.]
(2 numbers, annual mid-life salary and mid-life savings)

Write here...

4. Your Ideal Monthly Savings for Retirement (To fund 85% of your pre-retirement annual income)
Do the quick, five question, Fidelity Investments online myPlan Snapshot to calculate your savings goal at retirement. Notice you can move the orange slider bars to quickly get the numbers (age, monthly income, annual savings) to where they belong. Now assume you have just graduated from UAT (so use your age at that point). For income, put what you expect to make when you graduate (be realistic). Now plug in your expected monthly savings for investment, and your investment style (conservative, balanced, growth, or agressive) from the risk tolerance questions above. How much money does the last screen say is "Your Goal" for investment savings at retirement? This number is probably quite a bit larger than the minimum of $400,000 that the government recommends as a minimum to supplement your social security in retirement.
Write your Fidelity-recommended savings goal at retirement here...

5. Minimium versus Ideal Retirement Savings
Remember that $400,000is the absolute minimum retirement savings the government recommends. Assuming you don't touch this $400,000 "principal" when you retire, you'll be able to receive a pretax income of about $24,000 a year (6% interest) from this $400,000. If you are unhealthy at that time, almost all of this will probably go to pay your supplemental health insurance (assuming you can get insurance, which you may not if you are very unhealthy). If you are healthy at that time, about half of this will go to your supplemental health insurance, leaving you very little to live on. Thus you can see why $400,000 saved is a MINIMUM recommended savings. If you had $800,000 instead, you'd get annual pretax "salary" of $48,000. That's enough to pay rent, health insurance, and other incidentals. If you had $1.2 million instead, that would give you an annual pretax investment income of $72,000. Now you're finally living a reasonable quality of life in retirement, with enough money to cover housing costs, health insurance, and extra for travel, hobbies, etc. That's why good planners should aim for at least $1.2 million in their savings account when they retire.

Next, consider changing your retirement age, the first orange slider bar on the last page ("Time"). If you choose to eat and live healthy, you'll be mentally alert and physically energetic at least ten years longer than the typical American. That means, if you have a job you love doing, you are likely to work at least five years longer than the current average. As social security benefits continue to erode, the retirement age may even be raised a few years at some point in your career. Change your retirement age to 70 on the slider, assuming you are presently living a relatively healthy life. Notice how this makes your investment savings improve. If you aren't living healthy at present, leave it at 65. 

Next, play with the second orange slider bar on the last page ("Money").How much do you need to save per month in order to reach your retirement goal above, assuming the market performs poorly (Scenario A)? Assuming the market performs on average (Scenario B)?
Write your monthly savings goals (high and low) here...

6. Your Minimum Monthly Savings for Retirement
Go back to the beginning of Fidelity Investments myPlan Snapshot (just hit "refresh" in your browser) and start over, putting in your age on graduation, but this time put $25,000 as your income (the lowest one they allow). This will give you a retirement goal of $1,463,000, which is a bit higher than the $1.2 million we recommend as your comfortable minimum goal. Play with the Time and Money sliders, and find out the minimum money you should be saving every month in order to have over $1.2 million on retirement, assuming the market performs as it has in the past (Scenario B, the best case). For students who don't already have a retirement savings account, that should be something like $200/month.
Write your minimum monthly savings goal here...

7. Advice: Credit Cards.
Americans are addicted to high-interest debt. The average American household has 16 credit cards: eight bank cards and eight retail cards, and $9,205 of credit card debt. The average American pays $1300 a year on credit card interest alone. Card fees, interest rates, and lending practices get more predatory every year. In 2005, the top ten credit card companies spent over 2 billion in advertising, and they target college students, the bankrupt, and other ideal customers, willing to pay the minimum payment for long periods of time. The nation has a debt addiction too: our national debt is about $9 trillion and increases by more than a billion dollars a day. Watch Maxed Out, James Scurlock, 2005, to get a sense of this. Then cut up all but two of your bank cards and use them responsibly, never carrying balances on them for more than a month, unless its a true emergency.
No writing required for this item, just read and consider it.

8. Advice: Keep all Your Monthly Receipts and Make a Monthly Expense Record.
It is a great exercise in self-understanding to keep all your monthly receipts from everything you purchase in your wallet. Put them in there at the cash register right when you pay, with the oldest going at the back of the pile so they stay in date order. It doesn't take too long to learn the habit. Next, enter your expenses at the end of the month in an Excel spreadsheet or in QuickenMake categories for them that are meaningful to you, like supermarket food, dining out, entertainment, health, transportation, rent, etc. What were your top five expense categories? Once you've done this for three months in a row, you have enough information to start creating a personal budget, projecting out what you think you will spend, and how much you can put in savings. You won't always stick to your budget, but it will greatly help you understand your current spending behavior, and perhaps only then will you be able to start modifying it as you wish, so you can spend less in some categories, spend more wisely, and save more.
No writing required for this item, just read and consider it.

9. Advice: Read One Good Book Per Year on Simplifying, Saving Money, or Investing
If you read one good book a year, over twenty or thirty years, on investing or saving money, you will find that you become much more aware of and able to control your spending, saving, and investing habits. Almost every media message you will be subjected to over the rest of your lives will be carefully designed to get you to spend your money, on various things. Spending a week or two reading a good book on simplifying, saving money or on investing will be a critical balance to all that spending programming. It will remind you that you can choose your own path, and that much of your personal power will come from spending less than you earn, over a long period of time. We recommend starting with The Seven Stages of Money Maturity, George Kinder, 2000. Which stage presently describes you the best? How can you move from the "Innocence/Childishness" stage, where we all start, into the higher stages?
No writing required for this item, just read and consider it.

Ready to start using this wiki page to record and organize your personal Money issues? Go ahead and start writing at the top of this page once you've finished these assignments. May you have maturity, self-control, and prosperity your personal financial future!

Money - Personal Futures Wiki - ExampleAll material on this wiki is open source, creative commons licensed. Feel free to use any portion of this with appropriate attribution to "University of Advancing Technology, Foresight Development curriculum."