Team 7 Personal Investment

Michael Dellosa

Andrew Nimrod

Objectives

• Scenario

• Stocks

• Roth IRA

• Summary & Assumptions

• References

Scenario

• You are a 23 year old college graduate that has just started a job paying $55,000 dollars a year and want to invest 10% of your yearly salary in the market ,but is not sure on which route to go. So you decide to look at investing your money into stocks or a Roth IRA for a 10 year period in hopes that you will be able to make enough for a nice down payment on a house.

Stocks

• Basics– A stock is a share in the

ownership of a company. – Stock represents a claim

on the company's assets and earnings.

– Investment in stocks has historically had an average return of around 10%-12%

– Two types of stock common and preferred

www.investopedia.com

Stock Analysis% Sal. Inc.

5.50%Tax

BracketYear Salary raise/yr Salary

(post taxes)

Investment amount./yr

Investment % of

Salary/yr

Future Value (XOM)

Future Value (CVX)

Invested amnt./stock-yr

0.25 0 55000 3025 41250.00 4125.00 0.10 5507.27 5607.93 2062.500.28 1 58025.00 3191.38 41778.00 4177.80 5055.99 5139.08 2088.900.28 2 61216.38 3366.90 44075.79 4407.58 4835.09 4905.66 2203.790.28 3 64583.28 3552.08 46499.96 4650.00 4623.84 4682.83 2325.000.28 4 68135.36 3747.44 49057.46 4905.75 4421.81 4470.13 2452.870.28 5 71882.80 3953.55 51755.62 5175.56 4228.62 4267.09 2587.780.28 6 75836.35 4171.00 54602.18 5460.22 4043.87 4073.27 2730.110.28 7 80007.35 4400.40 57605.29 5760.53 3867.19 3888.26 2880.260.28 8 84407.76 4642.43 60773.59 6077.36 3698.23 3711.65 3038.680.28 9 89050.19 4897.76 64116.13 6411.61 3536.65 3543.06 3205.81

43818.54 44288.96

XOM No. of Shares $/share YearPurchase 29 70.97 0Purchase 26 79.14 1Purchase 25 87.32 2Purchase 24 95.49 3Purchase 24 103.67 4Purchase 23 111.84 5Purchase 24 120.01 6Purchase 24 128.19 7Purchase 22 136.36 8Purchase 22 144.54 9Sell 244 152.71 end of 9thDividends quarterly $.50/shSell 10 yrs $152.71/sh

$ inc./yr 8.17

Common Stock

*Assume similar 10yr change of: 50%

CVX Data XOM Data1-Jan-06 1-Jan-061-Jan-16 1-Jan-16

2.77% 2.77%$67.21 $72.27

$141.89 $152.71 4 40 0

Formula Formula10.52% 10.32%

CVX No. of Shares $/share YearPurchase 31 67.21 0Purchase 28 74.68 1Purchase 27 82.15 2Purchase 26 89.61 3Purchase 25 97.08 4Purchase 25 104.55 5Purchase 26 112.02 6Purchase 25 119.48 7Purchase 24 126.95 8Purchase 24 134.42 9Sell 260 141.89 end of 9thDividends quarterly $.50/shSell 10 yrs $141.89/sh

$ inc./yr 7.47

Common Stock

*Assume similar 10yr change of: 50%

Stock SensitivityFv Vs. DInvest. %

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

0.10 0.09 0.08 0.07

Investment % of Salary/yr

To

tal F

V (

$)

DFv

Stock Sensitivity Cont.Total FV Vs. D Combined ROR

78000.00

80000.00

82000.00

84000.00

86000.00

88000.00

90000.00

92000.00

94000.00

96000.00

98000.00

19.68% 20.84% 22.01% 23.19% 24.38%D Comb. ROR (%)

To

tal F

V (

$)

Total FV

Roth IRA

• Roth IRA Basics– Can invest up to $4000 a year by using an

after tax paycheck– Collect tax free compound interest on growth

on whatever you decide to invest in

• Limitation in this project– First 5 years contributions will not be

penalized, but the last 5 years will be penalized 10%

Roth IRA AnalysisAcutual

YearYear Salary

(post taxes)Amount

ContributedDo Nothing 2% Future

Value of Do Nothing

10% Future Value gain

with Ira

Sum of 5 Years

Last 5 Years with

10% Penalty

Profit

2007 0 $4,125.00 4000 $125.00 $152.37 $10,374.972008 1 $4,177.80 4000 $177.80 $212.49 $9,431.792009 2 $4,407.58 4407.58 ($0.00) ($0.00) $9,448.042010 3 $4,650.00 4650 ($0.00) ($0.00) $9,061.532011 4 $4,905.75 4905.75 ($0.00) ($0.00) $8,690.84 $47,007.172012 5 $5,175.56 5000 $175.56 $193.83 $8,052.552013 6 $5,460.22 5000 $460.22 $498.15 $7,320.502014 7 $5,760.53 5000 $760.53 $807.08 $6,655.002015 8 $6,077.36 5000 $1,077.36 $1,120.88 $6,050.002016 9 $6,411.61 5000 $1,411.61 $1,439.85 $5,500.00 $30,220.25

Totals $4,424.65 $47,007.17 $30,220.25 $81,652.06

Roth IRA SensitivityTotal Profit vs. DIRA %i

60000

65000

70000

75000

80000

85000

90000

95000

100000

105000

110000

0.05 0.07 0.09 0.11 0.13 0.15 0.17

IRA ROR (%)

To

tal

Pro

fit

($)

Summary

Assumptions

• Market value always went up

• Constant salary increase

• Same employer for the 10 yr. period

WinnerStock IRA Do Nothing Target

Down Payment

$750000 House

$79,923.34 $81,652.06 $51,151.40 $75,000.00Combined

RORROR

20.84% 10.00%

References

1. www.investopedia.com2. http://www.fool.com/money/allaboutiras/

allaboutiras12.htm3. http://personal.fidelity.com/products/retirement/

getstart/aboutira.shtml.cvsr?banner=12493134&immid=00045&psite=google&crtype=search&kw=Roth_IRA

4. http://www.dinkytown.net/java/RothIRA.html