For this project, we received a scenario where 18 years ago, our “guardian angel” set up a college savings plan for us with an initial investment of $8,500. They then would continue to add $50 each month ($600 yearly). After 18 years, at an average annual interest rate of 7%, compounded annually, the plan is now worth $50,556.80. We then had to decide what we do with the money after cashing it out and depositing the money in a brokerage account to invest on our own.
My investment philosophy is to invest when a stock is lower than the annual stock rate, for example when Disney’s stock dropped in July of 2015, and cash out when it’s really high up, but also to wait a long amount of time, because the more years you wait the more likely you are to profit. I also don't care for big fluctuations and prefer stability in my investments, the more fluctuations the less likely I am to invest.
According to a risk assessment quiz I took, by Rutgers, I have an average tolerance for risk. I agree with that result. While, I am willing to take some risks, they aren’t usually aren’t very large risks. If I don’t feel it is almost certain that I will profit, I am not willing to invest my money. I’m more willing to invest in something that I will make less of a profit on it it’s less risky, than to invest in something that I would make a much larger profit on but that has high risk.
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| AG Screenshot Risk Assessment 2015 |
I chose three investment goals I have over different periods of time. 1 year, 5 years, and 25 years.
1-year goal: Own a used car - Jeep ($6,500)
5-year goal: Rent an apartment for one year without having to work ($12,000)
25-year goal: Pay off all my student loans ($120,000) Own a house ($400,000)
When choosing which companies to invest in I looked at how well they have done over the course of 1 year, 3 years, 5 years, and since the company first started. I also paid attention to fluctuations and how big they were. If a company’s stocks would change constantly, I automatically crossed them off my list. If they were a sure and steady company for years and continued to have a steady increase the past year, I took a closer look at them. This way I could be almost positive that I would make a large profit and I knew that they would be the least risky. I also was only willing to invest in companies that don’t do anything that harms animals, people, or the environment. I decided that when it comes to money, I think the most important thing to look at is what will make money, not what is the nicest or friendliest, but I also have morals and harming others isn’t acceptable to me.
The two companies I chose were the Walt Disney Company and Amazon. The reason I chose these two companies is because I felt could invest in them both no matter what time horizon, since they both have had a steady increase over the years and I think they’re a safe bet no matter what time frame you choose.
- Walt Disney Company has a great competitive advantage over other companies in the entertainment industry. They have one of the largest shares in animation, television, film, theme park, and merchandising industries and over 10 years of a steady growth. They also offer dividends, $0.66/share biannually, but what’s more impressive is their steady growth, with an ROI of over 200% in just the past 5 years. They are constantly releasing new movies, TV shows, merchandise, and attractions.
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| Disney Stock Price. 2015. Via Google |
- Similarly to Walt Disney Company, Amazon has a competitive advantage over other companies in their industry. It is the largest Internet-based retailer in the United States. They are not likely to fail because of how many different things they offer, such as entertainment or retail. There is almost nothing you can’t find on Amazon and they find you the cheapest prices which is something consumers love, so I doubt they would drop in the market anytime soon. While Amazon itself hasn’t profited that much, people who invest in them have because of their good business model that customers like so much. Like Disney, they have had a steady growth over the years and also have an ROI of over 200% which is incredible.
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| Amazon Stock Price. 2015. Via Google |
I then organized my investments into three portfolios, one for each goal.
Portfolio I- 1 Year Goal
$3,954.24
4 shares of Amazon @ $563.91 ($2,255.64 total) (57.0% of portfolio)
15 shares of Disney @ $113.24 ($1,698.60 total) (43.0% of portfolio)
This grouping of Amazon and Disney has an expected ROI of 64.4%. After one year, I should have enough money for the car I want- $6,500.
Portfolio II- 5 Year Goal
$2,033.74
2 shares of Amazon @ $563.91 ($1,127.82 total) (55.5% of portfolio)
8 shares of Disney @ $113.24 ($905.92 total) (44.5% of portfolio)
This grouping of Amazon and Disney has an expected ROI of 490%. After 5 years I should be able to have enough money to pay rent for an apartment for an entire year without having to work- $12,000.
$2,033.74
2 shares of Amazon @ $563.91 ($1,127.82 total) (55.5% of portfolio)
8 shares of Disney @ $113.24 ($905.92 total) (44.5% of portfolio)
This grouping of Amazon and Disney has an expected ROI of 490%. After 5 years I should be able to have enough money to pay rent for an apartment for an entire year without having to work- $12,000.
Portfolio III- 25 Year Goal
$44,980.21
39 shares of Amazon @ $563.91 ($21,992.49 total) (48.9% of portfolio)
203 shares of Disney @ $113.24 ($22,987.72 total) (51.1% of portfolio)
This grouping of Amazon and Disney has an expected ROI of 1056.06%. After 25 years I should have enough money to pay off my student loans- $120,000 and own a house- $400,000.
$44,980.21
39 shares of Amazon @ $563.91 ($21,992.49 total) (48.9% of portfolio)
203 shares of Disney @ $113.24 ($22,987.72 total) (51.1% of portfolio)
This grouping of Amazon and Disney has an expected ROI of 1056.06%. After 25 years I should have enough money to pay off my student loans- $120,000 and own a house- $400,000.
Total Investment Portfolios Value- $50,968.19 (This is $411.39 over how much my guardian angel gave me to invest but I have my own $411.39 to invest already saved so it’s ok👍)
If you look at my Stock Sector, you see that I have chosen two companies that are very different and would branch into two very different sectors. A sector is a type of business that a company deals with, basically the category or industry, for example Disney’s Stock Sector is entertainment. The reason I chose entertainment and retail was because, while I doubt either of these sectors would fail anytime soon; if they were to for some reason, some of my money would still be safe in another stock so my loss won’t be as detrimental.
With each portfolio I tried to put in as close to a 50/50 balance in each company as I could, so that if one were to fail I would still have half of my money. I put the majority of the money I’m investing into my 25 year goal, since that is where I need the most amount of money.
Financial Advisor Nathan Aldinger came to speak to our class and a big part of what he does and what he talks about it financial planning. He also talked about how things happen a lot that you just can’t account for with the government, banks, and just money in general. You can never really plan something because you don’t know what might happen. So I think it’s important to keep that in mind while investing, because even if everything were to go perfectly in the stock market for me, I never know if something like what happened in Greece will happen in America, where I won’t be able to get my money out of the banks. I think it’s important to have another back up plan with the money I make on my own, not from my guardian angel.
Three assumptions I made while doing this project were that:
If you look at my Stock Sector, you see that I have chosen two companies that are very different and would branch into two very different sectors. A sector is a type of business that a company deals with, basically the category or industry, for example Disney’s Stock Sector is entertainment. The reason I chose entertainment and retail was because, while I doubt either of these sectors would fail anytime soon; if they were to for some reason, some of my money would still be safe in another stock so my loss won’t be as detrimental.
With each portfolio I tried to put in as close to a 50/50 balance in each company as I could, so that if one were to fail I would still have half of my money. I put the majority of the money I’m investing into my 25 year goal, since that is where I need the most amount of money.
Financial Advisor Nathan Aldinger came to speak to our class and a big part of what he does and what he talks about it financial planning. He also talked about how things happen a lot that you just can’t account for with the government, banks, and just money in general. You can never really plan something because you don’t know what might happen. So I think it’s important to keep that in mind while investing, because even if everything were to go perfectly in the stock market for me, I never know if something like what happened in Greece will happen in America, where I won’t be able to get my money out of the banks. I think it’s important to have another back up plan with the money I make on my own, not from my guardian angel.
Three assumptions I made while doing this project were that:
- These companies will continue to flourish and their stocks will continue to rise at a steady rate.
- That nothing major will happen with American money or the value of the dollar or my bank (Chase)
- That Disney’s recent drop is just an anomaly and won’t happen multiple times.
If this scenario were in real life I would definitely choose to actually do this project and put in it the stocks the way I did. The only thing I would change is the time horizon, because I would rather focus on my long term goals rather than my long term goals, so I would most likely just cash out the majority of the stocks after 25 years if not longer.
Works Cited
- Amazon.com. (2015, October 16). In Wikipedia, The Free Encyclopedia. Retrieved 15:35, October 16, 2015
- Douglas Satterfield. "Core Values: Amazon.com." Theleadermaker.com. N.p., 15 June 2014. Web. 16 Oct. 2015
- Investopedia. "Who Are Amazon's (AMZN) Main Competitors?"Investopedia.com. N.p., n.d. Web. 16 Oct. 2015
- Peter Roff. "The Man, the Medium and Message." US News. U.S.News & World Report, 06 Aug. 2013. Web. 20 Oct. 2015
- Rutgers. Investment Risk Tolerance Quiz. 2015. NA
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