You may often wonder how to retire comfortably. The most common way is to contribute every month to a retirement account during your working years.
In a typical retirement plan or a savings plan, it is assumed that there will be equal payments each month and that any interest earned by the plan each month will be added back into the principal. In this way, the plan builds value based upon successive contributions and calculated interest.
In most retirement plans, your money is distributed across different types of investments—this is known as your portfolio. In this assignment, you will manage an imaginary portfolio and determine the optimum contributions you must make to each category in your portfolio to achieve your retirement goals.
In this assignment, you will use a simple version of a portfolio where your money is distributed across three categories: stocks, bonds, and cash. Refer to this module’s readings to review historical return values.
Category Average Annual Return Stocks 6.0% Bonds 2.1% Cash 1.0%
Your portfolio will be diversified across these three different types of investments. The amount that you decide to put into each will greatly depend upon what stage of life you are in. If you are young and just starting out in your career, you may want to have a high-risk portfolio with the hope of high returns in the distant future. However, if you are near the end of your career, you may want to choose a less risky portfolio.