I am late to the table and I am disappointed no one actually answered the questions with their comments.
1. In your worksheet, what lever change made the largest impact? Ex. the rate of return, the number of years before the goal is reached, your savings rate, etc.Due to compounding, rate of return has the largest impact for typical durations. Short durations and low rates of return represent a "corner condition" where initial amount of money to invest drives the answer - that is, you already have "nearly enough" money to reach the tactical goal.
2. In contrast, which change made the smallest impact?As per the first question, time and rate of return provide the increase, so initial amount of principle has "smallest" impact, particularly if followed by appropriate additional payments over time.
3. What adjustments surprised you the most and what aspects did you already expect? Will you be making a permanent change to reflect your new findings or keep everything the same?
Actually, just seeing the future value formula in the spreadsheet told me everything to be expected. The "permanent change" is simply using the formula to budget needed monthly contributions, assuming a reasonable (achievable) rate of return. Or determining the goal is simply too expensive to realistically be achieved.
The latter is closer to my consideration of a) what do I think inflation will be since we just experienced a huge bump (it's that Future Value formula working against us!) and b) the equity market has risen far above any reasonable curvefit of historic prices, how can it not retract? These questions lead to updating the spreadsheet for lower rate of return - in my case, I have fixed duration (retirement phase) so need to reduce cost of goal. I think most of you can just add a few years to make up the difference.
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Hugh POLING
amateur radio station KC7HP
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Original Message:
Sent: 10-28-2021 14:14
From: Jenna Brashear
Subject: Lesson 5: The Timing of Goals
There are two timing elements of goals. The first is determining how much time there is before the goal will be reached. The second is evaluating the duration - how long do you expect to spend on the goal. Both influence how much risk you can take on to grow your portfolio.
Reflect
In Lesson 5, we are utilizing the "Time Value of Money worksheet" to determine which levers you pull have the biggest impact on being able to fund your goals. As you adjust each lever to fit your goals, it's important to consider what is having the largest, as well as the smallest, impact. Once you're content with your choices, save your worksheet so we can review it later in the planning process.
Engage
In this activity, fill out the worksheet attached and answer the three questions below that reflect your findings about your goals' time, cost and duration.
1. In your worksheet, what lever change made the largest impact? Ex. the rate of return, the number of years before the goal is reached, your savings rate, etc.
2. In contrast, which change made the smallest impact?
3. What adjustments surprised you the most and what aspects did you already expect? Will you be making a permanent change to reflect your new findings or keep everything the same?
Take a second to consider the above three questions and write down your answers. Then, please share your findings in the comments below.
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Jenna Brashear
AAII Community Manager
Chicago, IL
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