Home » Investing for retirement | Accounting homework help

Investing for retirement | Accounting homework help

  • In the sphere of finance, it is said that “there is no free lunch”. The meaning of this expression is that higher return must be paid for by accepting higher risk.
  • In prior discussions, we have examined the behavioral concepts of loss aversion, savings as a loss, inertia, present self versus future self – these are some of the behavioral traits that discourage saving for the future.
  • But suppose we overcome all these behavioral barriers to savings, we then need to decide what to invest in.  Now, return varies with the category of investment – see below:

                           Average rate of return                              

Bank account                     2%

Government bond             3.5%

Corporate  bond                5.5%

REIT (real estate)                8%

S&P 500                              10%

Nasdaq 100                         15%

  • The plot below gives the outcome of investing $200/month ($2,400 per year) for 40 years in the respective index fund:

Plot of 40 year investing at different rates of return.png

  • If all were of equal risk, then obviously we should choose the Nasdaq 100 and obtain 15% returns. But the reality is that return reflects risk – see the plot below of the Nasdaq 100 index (pink top line), S&P 500 index (blue middle line) and bond index (green bottom line):

SPY_YahooFinanceChart SPY QQQ BND.png

  • In finance, we equate higher risk with higher volatility / movement of the asset price, so the Nasdaq 100 is considered the riskiest under standard theory. To see this, consider a pensioner who lives off of the return from their investment account; with the Nasdaq 100, their returns are in the range +/- 30%; with the S&P 500 they are in the range +/- 20%; and with the bond fund they are almost constant (reflecting constant coupon payments). Thus, for the pensioner (this will be you one day), higher average return comes with greater uncertainty / risk of year-to-year return.

Question:  looking at the above plots, which of the three index funds would you prefer to invest in over the next 40 years, for your long-term retirement account. Explain your choice, considering (a) your personal ability to tolerate risk and (b) your goal for retirement lifestyle.







Place your order
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more