09 Dec How much will your portfolio be worth in 10 years?
How much will your portfolio be worth in 10 years? In 20 years? When you stop working? The Human Resource department at EcoCarnifex Corporation was asked to develop a financial planning model that would help employees address these questions. Frank Joseph was asked to lead this effort and decided to begin by developing a financial plan for himself. Frank has a degree in business and at the age of 25, is making $34,000 per year. After 2 years of contribution to the company retirement plan and receiving a small inheritance, Frank has accumulated a portfolio valued at $14,500. Frank plans to work for 30 more years and hopes to accumulate a portfolio valued at $1,000,000. Can he do it?Assumptions:1. 5% salary growth is reasonable.2. He plans to contribute 4% of his salary.3. 10% annual portfolio growth seems reasonable.4. Contributions occur monthly throughout the year.Develop an Excel worksheet and calculate the value at the end of 5 years.Frank projected he could save around $691,500 after 30 more years of service. What would Frank’s alternatives be if he wants to make $1,000,000? Frank showed this to his boss who made the following observations.1. Salary growth should not be constant. Should vary from 0 to 10 percent with a uniform probability distribution.2. Annual portfolio growth rate should be approximated by a normal probability distribution with a mean of 10% and a standard deviation of 5%Develop an Excel worksheet with this new information.Frank is willing to work 5 more years. What is the result of that decision?Use @Risk to perform these simulations.
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