Expert Q&A; Done you have gotten to a point in your life where you have a budget

Question

Expert Q&A; Done you have gotten to a point in your life where you have a budget, your cash inflows and outflows are matched to the point where you bills are getting paid; you have an emergency fund to cover contingencies; and your overal needs of your family are being met. Over a few years, you have accumulated $100,000 that is currently sitting in a savings account eaming very little interest. You have determined it is time to begin a structured approach to investing and need to allocate this $100,000 lump sum. You have also determined you may have $1,000 a month additional to invest. In order to establish how you will invest the $100,000, and in what items, you must addressed the following: o What is the goal? (the purpose for this money ultimately) o What is your time horizon? (when will you need to access these funds) o What is your risk tolerance? (where do you fall on the risk continuum from conservative > some risk> above average risk> aggressive) Upon determining the answers to the above questions, determine the make-up of your investment portfolio. How would you determine what types of investments are appropriate? What specific investments would you put in your portfolio? Why? If you can average 8% annual rate of return on the $100,000, how much would you have when you turn age sixty-five? the 5-step critical thinking problem solving process, determine what you do in the situations outlined above:

Explanation / Answer

My goal is to have a safe and easy retirement. I am 35 now and my time horizon is 30 years. Since this is long term goal, I can take adequate risk. Hence my portfolio would consist of 70% Equity and 30% Debt for stability.

The 30% of Debt would consist of government bonds and the remaining 70% in Equity would be invested in two mutual funds - one diversified equity and the other small cap fund to give a higher return.

If there rate of return is 8% on 100,000. In 30 years time, that would be = 100,000*(1+0.08)^30 = 1,006,265.69.

So 100,000 would be about 1 Million in 30 years compounded at 8% per annum.

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