Assignment #2 Retirement & Strategic Investment Plan PART I
A. What is the life expectancy of men & women, according to Statistics Canada?
B. What do you predict life expectancy will be in 50 years for men and women?
C. Do you plan on building in a "buffer" in your personal financial plan? i. How many extra months 'til you die' will you include in your "buffer"? ii. If you don't plan on a buffer, justify your decision. Now, looking into your Retirement Plan:
1) What do you expect your average monthly budget/spending will be before you retire? (i.e. the average monthly cost in the 12 months pre-retirement)
2) What is the monthly spending budget you want to have during your retirement? (To make it easier, assume you'll be spending the same flat amount each month during retirement) a. What % is this relative to your pre-retirement monthly spending?
b. How much ($ and %) of your income are you allocating to each category (food, shelter, insurance, travel...etc.) of your monthly budget?
c. What expenses will change (increase or decrease) after retiring?
3) What age do you and your partner expect to retire at? (If in doubt, use 65)
4) How long do you expect to live? If you assume you will be in a partner-relationship, how much longer (in months) will the 'last-to-die' partner live? a. How many post-retirement months will you have? (Use last-to-die #)
5) What are the specific, if any, government sources of income (CPP, OAS...) you expect to receive during your retirement years? a. What do you expect your total monthly income from these various government sources will be (using the current max) assuming you were retiring today?PERSONAL FINANCE in mind the max on CPP for individuals and couples, and assume an 80% clawback on OAS)
6) What is the net present value of the total financial gap (between your total monthly expenses in retirement & the total amount of monthly income you expect to receive from all government sources)? In other words, using the annuity formula (since you know how much you will need each month, and the # of months that you require it), calculate the net present value 'at the top of your mountain' using a 7% (i.e. 'real' discount rate).
7) What portion (%) of your take home salary will you allocate to your long-term investment plan each year? Remember to use salary information from assignment #1. a. How much will you set aside each year ($) from 25 to retirement using this %? (Assuming 2% raises each year except year 1 and a 20% average tax bracket) b. Don't forget to include a lump sum payment at 25 to get a head start on your long-term investment plan...
8) What is the future value of your payments (yearly and lump sum) at retirement using a 7% real discount rate?
9) Do you need to make adjustments to make your plan balance? (You know how much you need 'at the top of the mountain' to meet your retirement lifestyle goals, and the amount of funds that you expect to have to reach that number). What adjustments have you made to balance your plan? 3 marks
PART II Strategic Investment Plan You need to support your strategy with some detailed, thoughtful and insightful rationale - your planned course of action to accomplish your objectives.
1) Self-evaluate your risk tolerance, what is your current attitude towards risk? How will this change as you age? Which investment(s) are best suited to your risk tolerance now and nearer to your retirement age?
2) Which ETF's (ticker symbol) did you choose (min of 3; iShares, Horizon, Vanguard; max of 10)? a. What is latest closing price of each (provide the date)? b. What is the latest change in price ($ and %), from yesterday? c. What is the volume traded today and last 5 days?
3) In a table, summarize each ETF holding in your portfolio: a. Name of ETF and the ticker symbol b. Number of Holdings it contains (i.e. individual companies, not funds) c. % of Holdings in each Sector/Industry d. % of Holdings in each Country/Geographic Region
4) Looking at the ETF data from the last 3, 5 years or 'max', what is the CAGR rate of return achieved? What is the range? What is max & min? 10 marks Constraints: 1) Your choices must be in CAD $ 2) Your choices must be on the TSX a. You must use at least one product from each of: iShares, Horizons and Vanguard i. On their sites you'll find 'summary' performance data to help you b. You must ensure that your portfolio contains holdings in each of the following geographic areas: i. Canada ii. U.S iii. World iv. Emerging markets c. You must ensure your portfolio contains holdings in a minimum of 5 sectors Your portfolio will be judged on the reasonableness of the issues we discussed re: rate of return, diversification, sector allocation, and geographic concentration. Include with your report, as an appendix, a screen capture of each ETF's 'summary info' and any other relevant information as to why you selected that stock in your portfolio. Ensure that your appendix has a logical flow (i.e., your screen captures should appear in the same order as your choices)
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