This week, you will be creating an eight- to 10-slide PowerPoint presentation based on your Week 4 Investment Portfolio assignment. This presentation should address the main compone

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Investment Analysis

Kevin Sessions

University of Arizona Global Campus

BUS 405 Principles of Investments

Mark Stricklett

Mar 20, 2023

Investment Analysis

If I won $100,000 in a lottery, I would be excited at the opportunity to invest it wisely and grow my wealth over time. However, my current financial situation could be more pleasing, and I have a substantial debt that I need to pay off. I am struggling to maintain the interest payments on the debt. My income potential is high and my work stability is certain, long-term financial planning is challenging due to my lack of dollar for dollar accountability utilizing a zero based budget.

In terms of current investments, I do not have any significant investments aside from a traditional 401k and some savings that I accumulated over the past 23 years. A lottery win would provide me with a substantial windfall, and I would like to invest it prudently to help protect my financial future. Considering my current financial status, my top two investing priorities would be to pay off my mortgage and save more for retirement. My mortgage is close to $340,000, so it's a sizable burden that I want to pay off as quickly as possible. The interest I pay on my mortgage would be lowered, and long-term savings would be realized if I used any of my lotto winnings toward paying it off.

In addition, I would like to save more for retirement, as I am only contributing five percent towards a retirement plan, and my future is fairly-certain regarding employment. When the time comes for retirement, I can rest easy knowing I have enough money for my needs. Real estate is one type of investment that I consider as part of my investment plan. Real estate investment has a long history of popularity due to its potential for reliable returns and sustained growth (Waldron, 2018). As someone in my financial condition, I know firsthand the importance of having a stable feeling of security, which can be provided by owning property.

Real estate is a significant investment decision for many reasons. First, it has the potential to bring in a regular stream of cash through rent. Real estate also has a history of steady price increases that can add up to substantial profits over time. Furthermore, real estate ownership can positively impact my tax return through deductions for mortgage interest and property taxes.

In terms of stocks, I would consider investing in, Apple, Amazon, PayPal Holdings, Diageo plc, and EOG Resources Inc. These corporations have proven records of success and are leaders in their respective fields.

Apple Inc. is a multi-trillion-dollar company, making it one of the most valuable companies in the world. The company is well-known in the market for its long tradition of innovation and commitment to producing only the highest quality goods. In addition to a healthy cash flow, the company's balance sheet boasts over $200 billion in reserves.

Amazon is another digital giant that has expanded rapidly in recent times. Its market valuation is almost $1.5 trillion, and the corporation has expanded into many other industries, from e-commerce to cloud computing. In addition, the firm has shown remarkable financial performance, growing its revenues by more than 20% annually on average.

PayPal Holdings is a leading online payment service provider with over $300 billion in market capitalization. The company has shown remarkable financial performance over the years, with annual sales growth of over 20% (ZXhang et al., 2023). Nevertheless, the firm's financial sheet is robust, with over $14 billion in cash reserves.

Diageo plc is a leading producer of alcohol and has a market capitalization of over $110 billion. Guinness, Johnnie Walker, and Smirnoff are just a few well-known brands the corporation owns. The firm has also shown consistent success, with annual sales growth above 5%.

EOG Resources Inc. is an oil production company with over $50 billion in market capitalization. The corporation owns shale oil and gas deposits, among other assets, and has regularly shown strong financial performance. The firm has a proven history of dividend payments, now at a yield of around 2%.

I chose these specific stocks based on available data and company information. These companies have proven reliable throughout time by producing consistently solid financial outcomes. In addition to being at the forefront of their fields, each of these businesses has a significant edge over its rivals.

Furthermore, these stocks have a promising future, with a significant opportunity for growth in their respective industries. Apple Inc. stands to gain from the rising need for wearable technology and the ever-expanding smartphone market. Both Amazon and PayPal Holdings stand to gain from the expansion of online shopping, but Amazon stands to gain more from the change to digital payment methods (Bhandary, 2019). Diageo plc is set to benefit from the intensified demand for premium alcoholics and the increasing popularity of craft beer. EOG Resources Inc. is also set up to profit from the rising demand for oil and gas, especially in developing economies.

Overall, my choices of investment align with my financial goals. Real estate is an excellent way to diversify my portfolio since it offers the possibility of both stable income and long-term gain. To add to the benefits of diversifying my portfolio and lowering my risk, I can make high returns by purchasing these stocks. By paying off my mortgage and saving for retirement, I can ensure that I am on track to achieving my financial goals and securing my future.

According to Smart, S., & Zutter, C. J. (2020)."REITs typically offer investors some income in addition to their appreciation potential." With my future in mind, the accumulation and interest of real estate investment trust (REIT) sound exciting.

References

Bhandary, B. (2019). Amazon Pay: Banking on new thinking diagnosis white paper.  Available at SSRN 3413354.

Smart, S., & Zutter, C. J. (2020). Fundamentals of investing (14th ed.). Retrieved from https://platform.virdocs.com.

Waldron, R. (2018). Capitalizing on the State: The political economy of real estate investment trusts and the ‘resolution’ of the crisis.  Geoforum,  90, 206-218.

ZXhang, Y. X., Haxo, Y. M., & Mat, Y. X. (2023).  PYPL PayPal Holdings Inc. Common Stock (No. Stock Analysis). AC Investment Research.

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The progress in developing my portfolio in week 4's assignment is reasonable. I have made several positive steps essential in creating a successful investment portfolio and allocating the $1,000,000 I won from the lottery. The following steps will include reviewing Chapter 13 of the textbook and any previously covered chapters in the course in finishing the Investment Portfolio assignment due in Week 4. The next step is to draft a high-level outline of the financial condition and two SMART investment targets. Then, I will list at least three investments to help achieve those aims and explain my decision-making process. Then, I will visually represent how the $1,000,000 investment fund is divided among the chosen investment categories.

Real estate is a significant investment decision for many reasons. Rent could be a reliable source of income. Also, real estate has a track record of consistent price increases, which can lead to significant gains over time. Apple, Amazon, PayPal Holdings, Diageo plc, and EOG Resources Inc. are some companies whose stocks I am considering buying. These corporations have demonstrated a history of achievement and are leaders in their respective sectors. I picked these stocks after researching the companies involved. These organizations have proven trustworthy throughout time by providing consistently good financial returns. Each company is at the forefront of its industry and has a substantial advantage over its competitors. I have also identified several high-yield bonds to invest in, including SPDR® Portfolio High Yield Bond ETF and the iShares ESG Advanced Hi Yld Corp Bd ETF. I have no questions or concerns for week 4 and 5 assignments.

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Investment Portfolio

Kevin Sessions

University of Arizona Global Campus

BUS 405 Principles of Investments

Mark Stricklett

April 2, 2023

Investment Portfolio

Financial Situation and Goals

1. Developing a diverse investment portfolio with an average 8% yearly return over the following ten years.

Creating a diverse investment portfolio is excellent for long-term financial stability and growth. A diversified portfolio will include a variety of investments, including stocks, bonds, and alternative investments like REITs and ETFs. It spreads risk and lessens the overall portfolio's exposure to market volatility. It will track the improvement using a variety of performance-tracking techniques and software. These tools will make it easier to monitor the overall success of the portfolio and the performance of the individual items in it. I can assess whether the investment performance is at or above this rate by setting an annual target return of 8%. Building a diversified investment portfolio with an average yearly return of 8% over the next ten years is feasible given the high-income potential and secure employment condition. I must remember that investing entails risk, and sometimes the investments do not perform as well as I had hoped. To improve the chances of success, I must do extensive research, diversify the investments, and adopt sound risk management techniques. An average annual return of 8% is realistic, aligning with historical market averages. However, it is essential to note that investments can experience volatility in the short term, which may affect the returns. I should consider diversifying the portfolio and investing in different asset classes to manage risk. The goal is time-bound, with a specific timeline of 10 years. By setting a specific timeframe, I can establish a sense of urgency and work towards achieving the goal within a defined period.

2. Pay my mortgage in 15 years by making extra principal payments.

Paying off my mortgage is a significant financial goal that can provide financial security and peace of mind. Making extra principal payments is a practical way to achieve this goal. By paying down the principal faster, I can reduce the total amount of interest I pay over the life of the mortgage and shorten the repayment period. To measure the progress towards this goal, I should be able to track the reduction in the total amount owed over time. I can also calculate the additional amount needed to pay the mortgage faster and track the progress toward achieving this target. With the high-income potential and stable work situation, making extra principal payments on a mortgage is an attainable goal. However, I should consider other financial priorities, such as building an emergency fund and retirement savings, before allocating extra funds toward mortgage payments. Paying off a mortgage in 15 years is a common financial objective; making extra principal payments is a practical way to achieve this. However, ensuring that the extra principal payments do not strain the overall financial situation is essential. Therefore, I should work with a financial advisor to determine the number of extra payments I can afford. The goal is time-bound, with a specific timeline of 15 years. By setting a specific timeframe, I can establish a sense of urgency and work towards achieving the goal within a defined period.

Investment Types and Rationale

Real Estate:

Investing in real estate can be a great way to build wealth over the long term. One of the key benefits of real estate is that it provides both rental income and potential appreciation in value. Rental income can provide a steady stream of cash flow, while appreciation in value can lead to long-term capital gains. When investing in rental properties, it is crucial to consider location, property condition, and tenant demographics. Properties in desirable locations have higher rental demand and appreciation potential. Properties in good condition tend to attract better tenants and require less maintenance. Understanding tenant demographics can help investors target the right renters and minimize vacancies. Real estate investment trusts (REITs) are an excellent way to invest in real estate without the hassle of managing rental properties. REITs own and operate income-producing properties such as apartment buildings, office buildings, and shopping centers. REITs typically pay high dividends and can provide a steady income stream to investors. Real estate crowdfunding platforms allow individual investors to invest in commercial and residential real estate projects alongside other investors. These platforms typically require lower minimum investments than traditional real estate investments and offer the potential for high returns. However, they also carry a higher level of risk than more traditional real estate investments.

Exchange-Traded Funds (ETFs):

ETFs are an investment fund that trades like stocks on an exchange. Following a specific index, industry, or asset class exposes a comprehensive portfolio of stocks, bonds, or other assets. ETFs' low costs are among their most significant benefits. ETFs are more economical than mutual funds since they often have lower management expenses. ETFs also offer diversification, which can reduce the risk of a portfolio. Investing in a broad-based ETF can gain exposure to various stocks, bonds, and other assets. ETFs may also be more adaptable than mutual funds. ETFs are a popular choice for day traders since they, like stocks, can be bought and sold at any time throughout the trading day. ETFs are also tax-efficient since they allow investors to defer paying capital gains taxes by holding them for a considerable time.

Stocks:

Acquiring shares of specific organizations in the anticipation that their value would rise over time is the process of investing in stocks. In the near term, stocks can be risky and volatile but offer long-term gain potential. Researching the businesses and markets of interest is crucial when investing in stocks, as is diversifying the holdings across various industries and asset classes. Value, growth, and dividend investing are well-liked stock investment techniques. In value investing, stocks undervalued by the market are sought after using metrics like price-to-earnings ratios or book values. The goal of growth investing is to find businesses that are predicted to grow more quickly than the overall market. Finding firms that pay significant dividends and have a track record of raising those payments over time is critical to dividend investing. Individual stocks, mutual funds, or exchange-traded funds can all be used to invest in equities. It is crucial to remember that past performance does not guarantee future outcomes and that investing is always risky. Reinvesting the dividends can prove beneficial in the long run. According to Smart, S., & Zutter, C. J. (2020). “For investors who plan to reinvest any dividends that they receive, a dividend reinvestment plan (DRIP) may be attractive. In these corporate-sponsored programs, shareholders can have their cash dividends automatically reinvested into additional shares of the company’s common stock. (Similar reinvestment programs are offered by mutual funds and by some brokerage houses, such as Bank of America and Fidelity.) As Table 6.2 demonstrates, reinvesting dividends can have a tremendous impact on an investment’s value over time." While investing in stocks is crucial to maintain a long-term outlook because stock values frequently experience short-term changes.

Rationale

The choice of these three investment types supports my diversification strategy by providing exposure to various asset classes, including real estate, stocks, and bonds (through ETFs). It helps reduce the portfolio's risk and provides potential for long-term growth and income generation. Additionally, each investment type aligns with the SMART goals of achieving long-term wealth building and passive income generation while being cost-effective and well-diversified.

Real estate aligns with goals of long-term wealth building and passive income generation. Investing in rental properties or REITs can provide both rental income and potential appreciation in value, which can help achieve financial goals over time. Real estate also provides a good hedge against inflation, as rental income tends to increase over time with inflation.

ETFs align with the goal of diversification and cost-effectiveness. By investing in a broad-based ETF that tracks a specific index, sector, or asset class, I can gain exposure to a diversified portfolio of stocks, bonds, or other assets. It can reduce risk in the portfolio and provide long-term growth potential. Additionally, ETFs tend to have lower management fees than mutual funds, making them more cost-effective.

Stocks are long-term investments whose growth potential and ability to deliver high returns make them more attractive to any investor. Their high rates of return and long-term investment potential make them highly attractive to me and align with my investment objective. Investing in individual stocks or mutual funds/ETFs can generate more significant long-term returns than investing in other assets such as bonds or savings accounts.

Investment Allocation

Real estate: $30,000 or 30% of the portfolio; Real estate investment can generate passive income and value appreciation over time. However, investing in a rental property demands high investment costs, time, and work. Thus, investing in a REIT (real estate investment trust) may be a more convenient alternative. REITs are publicly traded organizations that own and manage a portfolio of real estate holdings, including office buildings, residences, and retail malls. By investing in a REIT, investors can receive exposure to the real estate market without worrying about property management. The $30,000 allotment might be distributed across residential, commercial, and industrial REITs.

ETFs (exchange-traded funds) are cheap and cost-effective investments that expose any investor to a diverse portfolio of stocks, bonds, and other assets. Hence, the decision to invest 50% of the earnings or $50,000 in this investment.

I will invest $20,000 or 20% of the portfolio in stocks. Investing in individual stocks or mutual funds/ETFs might offer more significant growth potential than conservative investments such as bonds and savings accounts. However, equities are riskier and more volatile, so diversification across firms and industries is essential. For instance, the allotment may be split evenly between Apple, Amazon, PayPal Holdings, Diageo plc, and EOG Resources Inc.

Financial Returns and Risks

To estimate the potential financial return of the investment portfolio after five years, let's assume the following annualized returns based on historical performance and forecasts:

· Real estate (REITs): 5% per year

· ETFs: 7% per year

· Stocks: 10% per year

Chart 1.

Note: Amount of investment per year

Using these assumptions, the estimated value of the investment portfolio after five years can be calculated as follows:

Year 0: Initial investment = $100,000

Year 1: Real estate (5% return) = $30,000 x 1.05 = $31,500

ETFs (7% return) = $50,000 x 1.07 = $53,500

Stocks (10% return) = $20,000 x 1.1 = $22,000

Total portfolio value after year 1 = $107,000

Year 2: Real estate (5% return) = $31,500 x 1.05 = $33,075

ETFs (7% return) = $53,500 x 1.07 = $57,245

Stocks (10% return) = $22,000 x 1.1 = $24,200

Total portfolio value after year 2 = $114,520

Year 3: Real estate (5% return) = $33,075 x 1.05 = $34,728.75

ETFs (7% return) = $57,245 x 1.07 = $61,333.15

Stocks (10% return) = $24,200 x 1.1 = $26,620

Total portfolio value after year 3 = $122,681.90

Year 4: Real estate (5% return) = $34,728.75 x 1.05 = $36,465.19

ETFs (7% return) = $61,333.15 x 1.07 = $65,713.59

Stocks (10% return) = $26,620 x 1.1 = $29,282 Total portfolio value after year 4 = $131,460.78

Year 5: Real estate (5% return) = $36,465.19 x 1.05 = $38,296.45

ETFs (7% return) = $65,713.59 x 1.07 = $70,389.50

Stocks (10% return) = $29,282 x 1.1 = $32,210.20

Total portfolio value after year 5 = $140,895.15

Therefore, the estimated value of the investment portfolio after five years is approximately $140,895.15.

Chart 2.

Note: 5-Year Performance of Investments.

Two key assumptions used to arrive at this estimated financial return include:

1. The annualized returns for real estate, ETFs, and stocks are based on their historical performance over the past 5 to 10 years. However, past performance cannot guarantee future results and can be impacted by various variables, including economic circumstances, interest rates, and geopolitical concerns.

2. Forecasted returns: The annualized returns of real estate, ETFs, and equities are also based on projected returns for the following five years. These projections are based on analysts' estimations regarding the companies' growth potential, earnings, and market trends. However, forecasts are inherently unpredictable and open to future errors or modifications.

Portfolio Monitoring

Monitoring your investment portfolio routinely is important for several reasons:

Performance evaluation: Regular monitoring of an investment portfolio allows any investor to evaluate its performance against their financial goals and benchmarks (Paolella, 2015). By tracking the portfolio's progress, one can make informed decisions about whether to continue holding, rebalancing, or selling their investments.

Risk management: Monitoring the investment portfolio also helps identify and manage risk. By tracking the performance of individual investments and asset classes, the investor can identify potential areas of weakness and adjust their portfolio to reduce risk.

By monitoring their portfolios, investors may ensure their portfolios are diversified across asset classes, industries, and geographies. It is significant because diversity helps decrease market volatility's impact on their entire portfolio by distributing risk.

Changes in market conditions: Frequent monitoring of the investment portfolio enables one to be informed of changes in market conditions that may affect their investments (Paolella, 2015). For instance, if an investor observes deteriorating stock price patterns, they may choose to lower their portfolio's equity exposure.

Rebalancing: Monitoring the investment portfolio also allows one to identify when to rebalance their portfolio (Paolella, 2015). Rebalancing involves selling overperforming assets and buying underperforming assets to ensure the portfolio meets its financial goals and risk tolerance.

References

Chart 1. (2023). Amount of investment per year.

Chart 2. (2023). 5-Year Performance of Investments.

Paolella, M. S. (2015). Portfolio Selection with Active Risk Monitoring. Social Science Research Network. https://doi.org/10.2139/ssrn.2616284

Smart, S., & Zutter, C. J. (2020). Fundamentals of investing (14th ed.). Pearson. https://ashford.redshelf.com/app/ecom/shelf/course-section/4924579

Real estate (REITs) ETFs Stocks 0.05 7.0000000000000007E-2 0.1

Real Estate EFTs Stocks Year 1 Total Real Estate EFTs Stocks Year 2 Total Real estate EFTs Stocks Year 3 Totals Real estate EFTs Stocks Year 4 Totals Real estate EFTs Stocks Year 5 Totals 1500 3500 2000 7000 1575 3745.0000000000005 2200 7520 1653.75 4007.1500000000005 2420 8080.9000000000005 1736.4375 4293.3205000000007 2662 8691.7580000000016 1823.2595000000001 4599.9513000000006 2928.2000000000003 9351.4108000000015 1.4059999999999999

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BUS405.W5A1.02.2022

Description: 

Total Possible Score: 20.00

Describes the Current Financial Situation at a High Level

Total: 1.00

Distinguished – Thoroughly describes the current financial situation at a high level.

Proficient – Describes the current financial situation at a high level. Minor details are missing.

Basic – Minimally describes the current financial situation at a high level. Relevant details are missing.

Below Expectations – Attempts to describe the current financial situation at a high level; however, significant details are missing.

Non-Performance – The description of the current financial situation at a high level is either nonexistent or lacks the components described in the assignment instructions.

States Two Personal SMART Investment Goals From the Week 4 Assignment

Total: 1.00

Distinguished – States two clear and accurate personal SMART investment goals from the Week 4 assignment.

Proficient – States two personal SMART investment goals from the Week 4 assignment. Minor details are slightly unclear or inaccurate.

Basic – States at least one limited personal SMART investment goal from the Week 4 assignment. Relevant details are unclear and/or inaccurate.

Below Expectations – Attempts to state two personal SMART investment goals from the Week 4 assignment; however, significant details are unclear and inaccurate.

Non-Performance – The two personal SMART investment goals from the Week 4 assignment are either nonexistent or lack the components described in the assignment instructions.

Discusses the Three Major Types of Investments From Week 4 and the Rationale for Choosing Them

Total: 1.00

Distinguished – Thoroughly discusses the three major types of investments from Week 4 and the rationale for choosing them.

Proficient – Discusses the three major types of investments from Week 4 and the rationale for choosing them. Minor details are missing.

Basic – Minimally discusses the three major types of investments from Week 4 and the rationale for choosing them. Minor details are missing.

Below Expectations – Attempts to discuss the three major types of investments from Week 4 and the rationale for choosing them; however, significant details are missing.

Non-Performance – The discussion of the three major types of investments from Week 4 and the rationale for choosing them are either nonexistent or lack the components described in the assignment instructions.

Explains How to Allocate the $100,000 to Invest in the Three Investment Types

Total: 1.00

Distinguished – Thoroughly explains how to allocate the $100,000 to invest in the three investment types.

Proficient – Explains how to allocate the $100,000 to invest in the three investment types. The explanation is slightly underdeveloped.

Basic – Minimally explains how to allocate the $100,000 to invest in the three investment types. The explanation is underdeveloped.

Below Expectations – Attempts to explain how to allocate the $100,000 to invest in the three investment types; however, the explanation is underdeveloped.

Non-Performance – The explanation of how to allocate the $100,000 to invest in the three investment types is either nonexistent or lacks the components described in the assignment instructions.

Includes Two Graphics Illustrating the Dollar or Percent Allocation of Investment Funds or Which Visually Support the Investment Portfolio

Total: 2.00

Distinguished – Includes two clear and accurate graphics illustrating the dollar or percent allocation of investment funds or which visually support the investment portfolio.

Proficient – Includes two graphics illustrating the dollar or percent allocation of investment funds or which visually support the investment portfolio. Minor details are slightly unclear or inaccurate.

Basic – Includes at least one minimal graphic illustrating the dollar or percent allocation of investment funds or which visually supports the investment portfolio. Relevant details are unclear and/or inac

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