Assets allocation

Assets allocation - Announcements Investing Asset...

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Investing: Asset Allocation ARE 142: Personal Finance Professor Heather Rose UC Davis, Fall 2009 Lecture 14 1 Announcements ± Credit card grades are up ± Income statement due on Thursday ± Practice problems available with solutions 2 Overview of Savings/Investments ± Investment Vehicles – accounts where you put your money ± Regular investment account ± 401K ± IRA (Roth and Traditional) ± Plans for self-employed (SEP, Simple, Solo-401K) ± Investment Assets – what you buy with those accounts ± Stocks Stocks ± Bonds ± Mutual Funds ± Historic returns ± Best mix of those assets ± How much you want to save ± Financial plan ± Inflation ± Social Security benefits ± How much do you expect to spend 3 Investment Assets ± Cash (checking, savings) ± Rates: 1.3% at ING direct ± Liquid, good for short term (money you’ll need within 3-5 years) ± Unlikely to keep up with inflation ± Good for money you ± Bonds ± Higher returns than cash ± Not too risky (treasuries) ± Fixed returns susceptible to inflation risk ± Stocks ± Highest returns ± Volatile in short run, less so in long-run ± Higher returns go hand in hand with higher risk 4
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Returns Vary By Horizon and Term What’s Better: Stocks or Bonds? ± You tolerate more risk when you are young ± Optimal assets changes over time ± Even when young good to have a mix of Even when young, good to have a mix of assets. ± A mix can reduce large swings in your returns. 7 Example: You Can Tolerate More Risk When You are Young ± You are 25 and want 1.5 million by the time your are 65. Expect 8% return in stock market. How much do you need to save per year (starting at end of this year and save for 40 years)? ± Saving $5,790 per year.
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This note was uploaded on 03/12/2010 for the course ARE 142 taught by Professor Staff during the Fall '08 term at UC Davis.

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Assets allocation - Announcements Investing Asset...

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