For this task, you will build and test an investment portfolio for your future self. Balance these factors:
- Your general investing goals
- How much risk you are willing to assume
- Making reasonable predictions of unknown futures
- Making sure your System 2 (critical thinking) balances your System 1 (intuition)
- Assessing what could change for a future portfolio
Read through the following scenarios, make your investment decisions, roll the die, and see what the outcome is. Write about your decision making as indicated in the boxes and be sure to note what surprised you as you watched your portfolio’s progress.
BEFORE YOU START:
• Find a six-sided die or a random number generator (use https://www.random.org/ to virtually roll a 6-sided die, or Google “random number generator” and set a limit of 1-6)
• Review these pages, especially if you haven’t done any significant investing before:
o Stock investing and risk: https://www.forbes.com/sites/laurashin/2014/09/26/7-steps-to-stock-investing-without-too-much-risk/?sh=1bc3e25329a6
o Passive index investing: https://20somethingfinance.com/passive-index-investing-is-boring-and-spectacular/
o ETFS and mutual funds: https://www.fool.com/investing/how-to-invest/etfs/ and https://www.fool.com/investing/how-to-invest/mutual-funds/
o Vanguard portfolio allocations: https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations
o Fidelity fund portfolios: https://www.fidelity.com/mutual-funds/fidelity-fund-portfolios/overview
Month 1
You inherited a windfall of $10,000 from a 100-year-old relative you’ve never heard of before. You donate $5,000 immediately to charity, and then wonder if you should actually have put it toward paying off debt. Not to worry, you realize, if this remaining $5,000 is invested well, it can turn into even more money than the original $10,000.
Your goal is to make as much from this investment as you can. However, you have to consider not just trying to get the highest rate of return, but you’ll also need to be careful to balance risk and reward.
A. Roll the die or use the random number generator (with boundaries of minimum 1, maximum 6), and type the number you rolled below to see where you are in your investing journey:
B. Based on your die roll, determine how far you are from retirement. If you are near retirement age, you will want to limit the risk factor of your investments so as not to lose them all in the short term. If you’re far from retirement, you have a lot more flexibility.
Roll: 1 2 3 4 5 6
1 year to retirement 5 years to retirement 10 years to retirement 20 years to retirement 30 years to retirement 40 years to retirement
Stocks: Technology Energy Financial Consumer Industrial Health
Indexes: NASDAQ DOW S&P
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
C. Build your portfolio based on your target retirement date. Here are your investment choices:
D. Fill in the chart below with your choices. How will you distribute your $5,000? You can put any of it into any of these 11 categories as you wish, but the total must add up to $5,000
Stocks: Technology Energy Financial Consumer Industrial Health
Your investment?
Indexes: NASDAQ DOW S&P
Your investment?
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
Your investment?
Month 2
You’ve built your portfolio, congratulations! Now it’s time to take it for a walk.
A. Before you start, write down your thoughts on your portfolio’s likelihood of finding success, your expectations for the investments, and why you chose to invest the way that you did.
B. Now, roll your die 3 times and input the 3 numbers your rolled below:
Roll 1 (Stocks): Roll 2 (Indexes): Roll 3 (ETFs/MFs):
C. The first roll value in (B.) applies to your stocks (if you own any). Adjust your stock values in the Monthly Totals Chart further down, according to how the market moved (e.g., if you had $1000 invested in financial sector stocks and rolled a 1 on your first roll, write $900 in the chart). NOTE: different stock picks will have different results!
Roll 1: 1 2 3 4 5 6
Tech/Energy -.15 -.10 -.05 +.05 +.10 +.15
Financial/Consumer -.10 -.05 -.02 +.02 +.05 +.10
Industrial/Health -.05 -.03 -.01 +.01 +.03 +.05
D. The second roll value in (B.) applies to your index funds (if you own any). Adjust your index fund values in the Monthly Totals Chart further down, according to how the market moved (e.g., if you had $500 in the S&P 500 index, and rolled a 6 on your second roll, write $525 in the chart). NOTE: different index fund picks will offer different results.
Roll 2: 1 2 3 4 5 6
NASDAQ -.08 -.05 -.03 +.03 +.05 +.08
DOW -.05 -.03 -.01 +.01 +.03 +.05
S&P -.04 -.02 -.01 +.01 +.02 +.04
E. The third roll value in (B.) to your ETF or mutual funds (if you own any). Adjust your fund values in the Monthly Totals Chart further down, according to how the market moved (e.g., if you had $700 in mutual funds and rolled a 4 on your third roll, write $700 in the chart):
Roll 3: 1 2 3 4 5 6
Exchange-Traded Funds -.03 -.02 -.01 +.01 +.02 +.03
Mutual Funds -.02 -.01 0 0 +.01 +.02
F. Update your Monthly Totals Chart below according to the above results:
Stocks: Technology Energy Financial Consumer Industrial Health
Current investment?
Indexes: NASDAQ DOW S&P
Current investment?
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
Current investment?
Monthly Totals Chart
Month 3
After a month or two of watching the market move, do some reflection in the box below:
A. What are your thoughts after seeing your investments move? Are you confident with your choices? Does anything need to change? Are you concerned about having enough to retire? Are you considering whether you’re being too risky—or too careful—in your investing?
B. Now that you’ve considered what’s working and what isn’t, you can make one change to your portfolio, or leave it alone. Indicate if you’re going to make a change (e.g. moving mutual fund investments into health stocks, etc.) in your Chart below. NOTE: You may want to copy and paste the charts from above (plus the one change, if desired) rather than retyping the values:
Stocks: Technology Energy Financial Consumer Industrial Health
Current investment?
Indexes: NASDAQ DOW S&P
Current investment?
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
Current investment?
Original Investment Totals Chart
Stocks: Technology Energy Financial Consumer Industrial Health
Current investment?
Indexes: NASDAQ DOW S&P
Current investment?
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
Current investment?
Updated Totals Chart
Months 4-12
We’re going to fast-forward, because tracking 9 more months of progress sounds rough (real-life personal investing requires some serious effort!).
So, one more round to extrapolate the rest of the year. Meaning, now the die rolls really matter!
A. Roll your die 3 times and input the 3 numbers your rolled below:
Roll 1 (Stocks): Roll 2 (Indexes): Roll 3 (ETFs/MFs):
Roll 1: 1 2 3 4 5 6
Tech/Energy -.10 -.06 -.03 +.03 +.06 +.10
Financial/Consumer -.30 -.20 -.10 +.10 +.20 +.30
Industrial/Health -.20 -.10 -.05 +.05 +.10 +.20
Roll 2: 1 2 3 4 5 6
NASDAQ -.03 -.02 -.01 +.01 +.02 +.03
DOW -.20 -.15 -.05 +.05 +.15 +.20
S&P -.09 -.05 -.02 +.02 +.05 +.09
Roll 3: 1 2 3 4 5 6
Exchange-Traded Funds -.15 -.10 -.05 +.05 +.10 +.15
Mutual Funds -.05 -.03 -.01 +.01 +.03 +.05
B. Update your Year-End Totals Chart below according to the above die rolls and value changes:
Year-End Totals Chart
Stocks: Technology Energy Financial Consumer Industrial Health
Current investment?
Indexes: NASDAQ DOW S&P
Current investment?
ETFS/Mutual: Dividend-yielding ETF Bond-heavy Mutual Fund
Current investment?
C. Now, add up all the money in your investment portfolio and write your year-end total below:
D. What’s the Percentage difference? (Divide year-end total by the original $5,000 investment):
Year-End Reflection
Hopefully you made some money, but maybe you didn’t! Either way, you probably have a sense of what you’d like to do the same or differently next year.
A. In this box, reflect on your investment experience within this simulator. What went well? What didn’t go well? When did you get lucky or unlucky? How do you control that? Will you have time to adjust your investments before your retirement?
B. Briefly, write about your goals for your real future (or current) investments. How will you achieve them? (worth 1 extra credit point)
Sample Solution