You are a young investor, aged 25, with $15,000 in your bank account You have heard from a friend in a finance class at UCLA that you should consider investing in stocks, bonds, and other investment vehicles in order to earn a greater return on your money You plan to be a diligent saver and deposit $2,500 a year for the next 5 years, and your friend asks you two questions How much money do you end up with at age 30 if you dont invest and leave the cash in your bank account, earning 0 interest How much money do you end up with at age 30 if you invest in stocks that give you a 17 return per year After seeing the effects of compound interest, you decide to invest in the stock market instead of hoarding cash Your friend also tells you about a few important investment strategies diversification and asset allocation shifts He says its good to diversify your investments across different stocks and bonds and that as you get older and closer to retirement, you should invest in safer assets such as bonds and cash Warren Buffett once said diversification is just for people who dont know what theyre doing and the richest people in history have gotten rich from taking risks as opposed to diversifying Is diversification good for everyone Why or why not As you get closer to retirement, why do you need to invest in bonds and safer assets After the research, you realize the most important thing is that you need to start investing today to make money You visit an investment advising firm, do you own research, talk to parents and teachers, and they all have different advice You realize youll need to make your own decisions to invest properly Build an example portfolio Assume you have the $15,000 mentioned above and you want to build an investment portfolio Name specific stocks (or bonds) you would buy, how much $ you would invest in them, and why you chose these companies Please state the level of risk in your portfolio as well (high risk, moderate risk, low risk) Now assume you are 50 and approaching retirement You did a great job investing and you have $2,500,000 at age 50 You realize you will transition to a safer portfolio but you still want to hold some stocks for potential gains Build another portfolio, this time taking into account your age and new risk tolerance at age 50

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Posted on Oct 03, 2024

You are a young investor, aged 25, with $15,000 in your bank account. You have heard from a friend in a finance class at UCLA

You are a young investor, aged 25, with $15,000 in your bank account. You have heard from a friend in a finance class at UCLA that you should consider investing in stocks, bonds, and other investment vehicles in order to earn a greater return on your money. You plan to be a diligent saver and deposit $2,500 a year for the next 5 years, and your friend asks you two questions:

How much money do you end up with at age 30 if you dont invest and leave the cash in your bank account, earning 0% interest?
How much money do you end up with at age 30 if you invest in stocks that give you a 17% return per year?

After seeing the effects of compound interest, you decide to invest in the stock market instead of hoarding cash. Your friend also tells you about a few important investment strategies: diversification and asset allocation shifts. He says its good to diversify your investments across different stocks and bonds and that as you get older and closer to retirement, you should invest in safer assets such as bonds and cash.

Warren Buffett once said diversification is just for people who dont know what theyre doing and the richest people in history have gotten rich from taking risks as opposed to diversifying. Is diversification good for everyone? Why or why not?
As you get closer to retirement, why do you need to invest in bonds and safer assets?

After the research, you realize the most important thing is that you need to start investing today to make money. You visit an investment advising firm, do you own research, talk to parents and teachers, and they all have different advice. You realize youll need to make your own decisions to invest properly.

Build an example portfolio. Assume you have the $15,000 mentioned above and you want to build an investment portfolio. Name specific stocks (or bonds) you would buy, how much $ you would invest in them, and why you chose these companies. Please state the level of risk in your portfolio as well (high risk, moderate risk, low risk).
Now assume you are 50 and approaching retirement. You did a great job investing and you have $2,500,000 at age 50. You realize you will transition to a safer portfolio but you still want to hold some stocks for potential gains. Build another portfolio, this time taking into account your age and new risk tolerance at age 50.