Sunday, April 22, 2018

Component 5 Instructions (AQR Final Project)

For this activity, you will assume you have $50,000 to invest at age 25. Here are instructions broken down by row in the table provided.

Row 1 ("List the goals you'll...")

-Remember: you are completing this as if you're 25 years old. For each section, think about some goals you may want to save money for staring from that age.

-Examples could include (but are not limited to) saving for children, retirement, buying a home, vacation, graduate school, car, etc. Think about when in life you'd like to achieve each goal and fill the boxes appropriately.

-You must have at least one goal per time frame (at least one goal in short-term, medium-term, and long-term).

-Make sure to write down how long you will be saving (starting at age 25) for each goal.

Row 2 ("For these goals, where will...")

-Please choose from the following options: Savings account, Certificate of Deposit (CD), Bonds, and Stocks. You can choose more than one for each box. If choosing stocks, specify if you are investing in the stock of one company, several companies, or an index fund.

-When explaining your choice, make sure to mention why the risk of the investment option you chose matches the time-frame of your savings goal.

Row 3 ("Pick specific investments...")

-Remember, you are assuming you have $50,000 that you can invest between your short, medium, and long-term goals.

-Below are instructions on finding specific investments and their interest rates. Once you find your investments and interest rates, you will choose the principal amount you want to put in each investment. Then, you will use the compound interest formula to calculate the return on your investment over the amount of saving time you chose. Make sure to show your work. Here is the compound interest formula again: A = P(1 + r)^t.

Here are instructions for finding specific investments and their interest rates:

-Savings Accounts: If you picked a savings account for any of your investments, use the following links to shop around and find interest rates with different banks. Look for APY (annual percent yield), which is the fancy term for interest rate. When you figure out which one you want, write down the bank name and the APY interest rate.
       -Bank of America
                Write in your zip code, after which click "View PDF." Find the APY for your principal amount
       -Chase Bank
       -Wells Fargo
                Enter your zip code. Find the "Wells Fargo Way2Save Savings" row and write down the APY.
       -Frost Bank (you will have to find the rate next to the principal/deposit amount. It's not the big 0.75% on top, which is only for big principal of $250,000 or more)

-Certificates of Deposits (CDs): If you picked a CD for any of your investments, use the link below (after reading the instructions below) to shop around and find interest rates with different banks. When you select the CD you want, write down its name and the APY interest rate. Follow these instructions for searching on the website:
       -For "Deposit Amount," write your principal amount you're investing in the CD
       -For "Deposit Type," put "CD Rates"
       -For "Term," select the time period that you will keep your money in the CD. The longer the term, the higher the interest rate (but there are penalties if you draw your money out early).
       -For "Location," write the city in which you'll be living at age 25.
       -For "Sort By," select "APY" so that the highest APY interest rates appear first.

-Bonds: If you picked bonds for any of your investments, use the link below (after reading the instructions below) to shop around and find interest rates with different bonds. Follow these instructions for searching on the website:
      -Scroll through the list and click on the symbols to look at individual bonds. Only click on                    symbols that end in "US" so that you look at United States bonds.
      -If you click on a symbol, it will pull up an orange page with information about the bond's                    performance. Scroll down below the graph and find the number under "1 YR RETURN." This is       the interest rate on the bond from the past year.
      -Once you find the bond you want, write down its symbol, its name, and its interest rate (the "1            YR RETURN" percentage).

-Stocks: If you picked stocks for any of your investments, you can use Google to effectively research different stock information. Follow these instructions:
       -To find the stock of a certain company, google the company's name and "stock." For example, if I wanted to look up Amazon's stock, I would google "Amazon stock." This is what comes up:

When judging a stock, it's best to look at the "1 year" or "5 year" option to see its value over time. When you choose a stock (or different stocks) that you'd like to invest in, write down the company name and the stock symbol. The stock symbol is usually a three or four-letter abbreviation for the company that is underneath the company name. For Amazon, we can see the symbol is "AMZN." This is how stock traders identify the stock.

You can also look up index funds. For example, you can Google "SP 500," "Dow Jones," or "NASDAQ" to see the three most common stock indexes. Make sure to write down their names and symbols as well if you want to invest in index funds.

The average annualized total return for the S&P 500 index over the past 90 years is 9.8%. We will use 9.8% as the interest rate for any stock you purchase (since this is our best approximation of the market average over time).

Asset mix pie chart

To figure out the percentages you put into savings accounts, CDs, bonds, stocks, and that you left uninvested, you do the following calculations. Please show your work on your paper:

Savings: [(Total amount put into savings accounts) / 50,000] *100
CDs: [(Total amount put into CDs) / 50,000] *100
Bonds: [(Total amount put into bonds) / 50,000] *100
Stocks: [(Total amount put into stocks / 50,000] *100
Not invested: [(50,000 - total amount invested) / 50,000] *100

With these percentages, go ahead and draw and label the asset mix pie chart in the circle on the paper.