FINC 321 - ASSIGNMENTS

FINC 321 WORK

ASSIGNMENT 1 – WEEK 5 DISCUSSIONS – BASICS OF INVESTING (150-250 WORDS**)

Most individual investors immediately look at an investments past returns when determining which investment to select.  Too many people skip the important step of understanding the fundamentals of investing, including diversification and asset allocation.  My wife and I personally have three retirement investment plans (401a, 401k, IRA) with contributions spread across 18 different mutual funds; we have aggressive funds and corporate bond funds; we have international equity and international bond funds; we even have a fixed rate fund.  I utilize an advisory service offered by the 401a provider to keep me in check for my diversification, which is set at 70% equity (stock funds) and 30% bond/cash.  I also track my investments on a monthly basis (along with a net worth chart) using Excel.  For those that don't know where to start, this is probably the first step -- develop your own retirement chart listing your investments, their share price (or net asset value/NAV), and the amount as of a certain date.  This information is even more important once you retire.

How do you track your investments?  Do you even look at your statements?  And better yet, how did you determine which investments to make?  I personally use sources such as Morningstar, Money magazine, Kiplinger’s personal finance magazine, and Marketwatch.com, plus I meet with a financial adviser once a year.

ASSIGNMENT 2 – WEEK 6 DISCUSSIONS – RETIREMENT GOALS (150-250 WORDS**)

The purpose of this discussion is to explore the decision to begin or optimize plans for retirement as we approach later years, quickly. In addition to providing for your loved ones when you cross-over.  As we get older, we begin to spend more and more of our time thinking about retirement, and imagining all the things we'll do when we finally get to enjoy the fruits of our many years of hard work.  But too often, we get too caught up in the dream and don't pay enough attention to putting together some kind of financial plan that will make that dream reality. Live free will gets in the way, and we end up spending instead of saving.

The more time you put it off saving, the less will be available for later years’ free will.  It's never too late to start effective planning towards those retirement dreams.  More than ever before, we have to assume responsibility for our own retirement savings plan. 

MassMutual Financial Group targets areas that may assists individuals as they embark on preparing for those retirement years.  See the attached article outlining the Top 10 questions for planning for retirement.  What steps have you completed and which ones do you need to work on? 

/content/enforced/125018-001019-01-2162-OL1-6381/MassMutual Top 10 Article.rtf

ASSIGNMENT 3 – WEEK 6 DISCUSSIONS – ESTATE PLANNING (150-250 WORDS**)

Estate planning is quite complex. Given the ever changing federal and state tax laws, an individual or family is best served by seeking advice from a qualified attorney. Prior to meeting with an attorney, the family needs to make some hard choices as it relates to property and the care of their children.  This is outlined in a will.  So tell me, do you have a will or not? If so, was it developed by an attorney or using a computer software program?

ASSIGNMENT 4 – WEEK 7 DISCUSSIONS – MUTUAL FUNDS (150-250 WORDS**)

For most individual investors (myself included), retirement investing will be done through mutual funds.  As you read in chapter 13, mutual funds are a combination of stocks, bonds, and sometimes cash (e.g., U.S. Treasury certificates).  You have the ability to purchase small amounts of a wide selection of stocks and bonds.  The main advantage is that you’re diversifying across different companies rather than owning just one.  Even if you can afford to purchase stocks, say Johnson & Johnson or GE, the fees that brokers charge ($7.95+) may not be worthwhile.  In addition, most employer-sponsored retirement plans invest solely in mutual funds.  A listing of the mutual funds that my wife and I own through our three retirement plans is attached.

 

The key to owning mutual funds, that many investors do not consider, is to diversify the mutual fund investment objectives themselves.  When you look at my investments (and note that I’ve been actively investing for 20 years), there are a number of growth, growth & income, international equity, bond, and international bond funds.  My investment mix is 70% equity and 30% bond, which means that when you add up the total value (not shown), we have a 70/30 mix of equity mutual funds and bond mutual funds.  Our total financial asset portfolio is 65/25/10 of equity/bond/cash, when we figure in our checking and emergency savings account.  As you can probably determine by now, equity type mutual funds, which are primarily invested in stocks, are riskier than bond funds.  However, some bond funds, for example high-yield funds, are very risky because they primarily invest in “junk” bonds, or lower grade bonds. 

 

I, like many investors, do an annual review of my investments to determine if I want to make any changes.  There are very few that I’ve held for 10+ years (e.g., Vanguard STAR, Guggenheim SGI Mid-Cap Value, PIMCO Total Return).  I have chosen my investments based on a number of factors, including Money magazine and Kiplinger’s Personal Finance magazine, MarketWatch.com, “Nightly Business Report” television show, and meeting with a financial advisor who offers his services as part of my employer-provided 401(a). 

 

Again, the key is to pay attention to what you investing in, and more importantly, why you chose the investment in the first place.  We’ve already started this conversation with some, but let’s bring it out for all – tell me what your mutual fund investments are, why you chose them, and whether you have made adjustments over the past few years.

ASSIGNMENT 5 – Homework 2:

· Chapter 4:  4.3 #2

· How can you determine if a lump-sum payment or an annuity will have greater value for you?

· Chapter 5:  5.3 #1

1. When is a cash flow budget a useful alternative to a comprehensive budget?

ASSIGNMENT 6 – HOMEWORK 3:

· Chapter 7: 7.2 #2

You have $10,000 to deposit. You want to save it, earning interest by loaning its use in the money market to your bank. You anticipate you will need to replace your washing machine within the year, however, so you don’t want to surrender all your liquidity all at once. What is the best way to save your money that will give you the greatest increase in wealth without too much risk and while still retaining some liquidity? Explain your reasons for your choice of a solution.

· Chapter 8: 8.2 #3

For a car you would like to drive, calculate and compare what it would cost you to buy it and to lease it. Use the Lease versus Buy Calculator athttp://www.leaseguide.com/leasevsbuy.htm. What would be the advantages of owning the car? What would be the advantages of leasing it? For your lifestyle, needs, and uses of a vehicle, should you buy or lease?

· Chapter 9: 9.2 #1

1. You are considering purchasing an existing single family house for $200,000 with a 20 percent down payment and a thirty-year fixed-rate mortgage at 5.5 percent.

C. When should you consider an adjustable-rate mortgage?

Review the explanation of adjustable-rate mortgages on the consumer guide site of the U.S. Federal Reserve (the Fed) athttp://www.federalreserve.gov/pubs/arms/arms_english.htm.

ASSIGNMENT 7- HOMEWORK 4:

· Chapter 12: 12.3 #4

What kinds of risk are included in investment risk? Go online to survey current or recent financial news. Find and present a specific example of the impact of each type of investment risk. In each case, how did the type of risk affect investment performance?

· Chapter 14: 14.1 #1

1. What four measures are the most important indicators of the health of the economy? What are the other leading economic indicators? Go to a financial news source to find out the status of all the economic indicators at this time. Make note of your findings and the date for purposes of comparison. How does the information inform you as an investor? Discuss with classmates the implications of the economic indicators for investing. For example, read the results of the most recent Consumer Confidence Survey athttp://www.conference-

board.org/economics/ConsumerConfidence.cfm. How might these survey results inform you as an investor?

· ASSIGNMENT 8 – HOMEWORK 5:

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· Chapter 11: 11.2 #2

As part of your planning, how can you estimate what you can expect from Social Security as a contribution to your retirement income? Find this answer by going to http://www.ssa.gov/retire2. Using the menus at this site, find out your retirement age. How many credits toward Social Security do you have now? How many do you expect to accumulate over your working life? Use one of the benefit calculators to find your estimated Social Security benefit. How much could you receive monthly? Would you be able to live on your Social Security alone? How much more would you need to save for? What would happen if you continued to work or went back to work after taking your retirement benefit? What would happen if you took your benefit before your full retirement age?