Jack is currently 20 years old and has 1000 dollars in his 401 k. He plans...

Jack is currently 20 years old and has 1000 dollars in his 401 k. He plans to put in additional 1000 dollars every year. He is not sure about the allocation so decides to put 50 % in a stock fund and 50 % in the bond fund. If the future fund growth performance is same as the historical growth;

Forecast how much will Jack have in each fund and calculate his asset allocation percentage based the forecasted amount at the end of each age period.
Read rule of 100 (in the text Investment demystified). Compare Jack’s asset allocation of 50/50 (which he is not changing over time) and compare with applying rule of 100. Provide comparison over the periods (Current age, 30, 40, & 50)
What would you recommend Jack and why?

Historical growth rates
Fund A ( stocks)	6.00%
Fund B ( Bonds)	4.00%



For John currently 20 years old
Current value	$ 1,000
“Annual” deposit	$ 1,000

(a)		N=10	N=20	N=30
Forecasting portfolio	Current age: 20	At age of 30	At age of 40	At age of 50
Portfolio in Stock fund	$ 500	?	?	?
Portfolio in Bonds	$ 500	?	?	?
Total	$ 1,000	?	?	?


Asset Allocation
AGE	20	30	40	50
Portfolio in Stock fund	50.0%	?	?	?
Portfolio in Bonds	50.0%	?	?	?
Total	100%	?	?	?

Expert Solution

jeff jeffy answered 1 year ago

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