Protfolio Example

Protfolio Example - 883.70 1,315.48 100.00% 1,185.95 -9.85%...

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I am very conservative. I want to invest 20% in stocks, 80% in money market funds to save for my retirement. I put $200 into stocks and $800 into a warm, fuzzy, safe, secure money market. I ignore my very conservative investment portfolio for the next 10 years, watching the stocks increase in value 8% each year and the money market increase 1%. The day before I retire I see that my portfolio is worth $1,315.48. I am happy. I invested conservatively, not taking too much risk, confident that the portfolio will stay worth about $1,300 431.78 32.82% =200*(1.08)^10 883.70 67.18% =800*(1.01)^10 1,315.48 100.00% The day I retire stock prices plummet 30%. I am not concerned as I only invested 20% in stocks. I do not think this crash will impact my happy little $1315.48 portfolio. I was 20% invested in stock, stock went down 30%, I kinda feel I lost 6% (30% of 20%). 431.78 32.82% =200*(1.08)^10 302.25 883.70 67.18% =800*(1.01)^10
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Unformatted text preview: 883.70 1,315.48 100.00% 1,185.95 -9.85% How could I have avoided this large swing in value? I could have rebalanced my portfolio annually. Year 2 Before 2 After 3 Before 3 After 4 Before 4 After 5 Before 5 After 6 Before 6 After 7 Before 7 After 8 Before 8 After 9 Before 9 After 10 Before 10 After Crash Stocks 200.00 216.00 204.80 221.18 209.72 226.49 214.75 231.93 219.90 237.49 225.18 243.19 230.58 249.03 236.12 255.01 241.79 261.13 247.59 267.40 253.53 177.47 Bonds 800.00 808.00 819.20 827.39 838.86 847.25 858.99 867.58 879.61 888.41 900.72 909.73 922.34 931.56 944.47 953.92 967.14 976.81 990.35 1,000.26 1,014.12 1,014.12 Total 1,000.00 1,024.00 1,024.00 1,048.58 1,048.58 1,073.74 1,073.74 1,099.51 1,099.51 1,125.90 1,125.90 1,152.92 1,152.92 1,180.59 1,180.59 1,208.93 1,208.93 1,237.94 1,237.94 1,267.65 1,267.65 1,191.59 -6.00% 1 Before Rebalance 1 After Rebalance % Lost in Crash...
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