Assignment 1 -

Group Discussion: Diversification

There is a trade-off between risk and return when investing. Since the return of most types of investment is uncertain, it is wise to diversify your money across various types of investments.

Answer the questions for the mini-case on Diversification. In your groups comment on and discuss the answers provided by other group members, as needed.

For added convenience, I have reproduced the case below:

Last year, Joban graduated from high school and received several thousand dollars from an uncle as a graduation gift. Joban is now in his first year of college. He just heard of a guy in his dorm who invested in a software company and made a huge profit in a few months. Joban like the idea of making some money fast and is considering investing his graduation gift money in the a company that has its business based on servicing the internet. Joban's roommate, Shawn, just finished a personal finance course and is concerned that Joban has run up a large credit card bill and has trouble balancing his monthly budget. Money that Joban receives from his job he tends to spend. In addition, Joban really does not know much about investing or how people actually make money by investing. Shawn has asked you to help him by giving him some advice so that he can talk to Joban about his investment plans. With respect to the trade-off between return and risk, what should Shawn explain to Joban? Shawn will urge Joban to invest for the long-term using a diversified approach. However, Joban will probably react with some skepticism. Explain to Shawn why he is correct. How should Joban allocate his assets given his life stage?

Assignment 2 -

A pooled investment fund is an investment vehicle that pools together money from many investors and invests that money in a variety of stocks, bonds, or indexes of stocks and/or bonds. The two types of pooled investment funds you will most likely encounter are mutual funds and exchange-traded funds, or ETFs. Paradoxically, some would say, companies that sell mutual funds have enjoyed much more sales success then companies that sell ETFs.

In your groups, answer the following questions after reading chapter 13 of your text, the article above, and other material that you determine to be relevant.

1. What are the advantages and disadvantages of mutual funds?

2. What are the similarities and differences between mutual funds and exchange-traded-funds (ETFs)?

3. List the companies that offer ETFs in Canada. Provide a link to the main page of reach company that you identify. What is the difference in the value proposition of each company with respect to their ETF offering?

Assignment 3 -

Retirement income planning consists of 2 phases: wealth accumulation and income distribution. For many individuals, wealth is accumulated by making contributions to a defined-contribution pension plan, individual retirement savings plans (RRSPs and TFSAs), and paying down their mortgage. Sources of retirement income include payments from the Canada Pension Plan, the Old Age Security Program, a defined-benefit pension plan and the conversion of the wealth accumulation accounts mentioned earlier to retirement income accounts, such as RRIFs, annuities, LRIFs, and LIFs.

Read the article, The Ying and Yang of Retirement Income Philosophies. Also, review the powerpoint associated with the article.

The first portion of the article explores the key differences between wealth accumulation and income distribution. The powerpoint summarizes these differences.

The second part of the article describes the philosophy for the two broad schools of thought with respect to how you plan your retirement income: probability-based versus safety-first. The powerpoint provides a summary of the key points from this second part.

The third part of the article describes eight retirement income strategies and where they are situated on the probability-based/safety-first continuum. The powerpoint provides a summary of each strategy. At the extreme, a 100% probability-based strategy would require asset management throughout the retiree's life cycle. On the other end, a 100% safety-first strategy would require no asset management since 100% of investment assets would be annuitized.

Questions'

1. What is an annuity? What are the two main types of annuities? Why would annuitizing your assets be considered a 100% safety-first strategy?

2. Relative to annuitization, what are the benefits and drawbacks of managing your assets throughout your entire life cycle?

3. Assume you decided to neither annuitize nor manage 100% of your assets; which of the other retirement income strategies along the continuum would you prefer? Explain.

4. Critique one of the strategies chosen by another student and provide an alternative strategy. NOTE: You may also support another student's chosen retirement income strategy with additional supporting evidence.

Assignment Files -  

https://www.dropbox.com/s/6z9vhonc2j6biqr/Assignment%20Files.rar?dl=0