Problem:
I want to buy a place in the next 3 years, and for that, I need to ensure that I have enough for a minimum down-payment of 15%. The places I’m looking at cost approximately $800,000, and I currently have $80,000 saved for a down-payment. Each year, I can add $10,000, which can be added to my savings to use for a down-payment.
To achieve my goal of saving enough for a down-payment within three years, I have several options available to me. I can invest in a 1-year 3.5% annual non-redeemable GIC, a 3-year 4.2% non-redeemable GIC, or stock investments.
Solution:
I have decided to allocate my money equally between a 1-year 3.5% annual non-redeemable GIC and stocks. This means that I will invest $40,000 in the GIC and $40,000 in stocks.
For the GIC, I will earn $1,400 in interest income after one year. If I continue to add $10,000 to this investment each year, I can earn a total of $4,200 in interest income over three years, bringing my total savings to $44,200.
For stocks, assuming an average annual growth rate of 7%, I can potentially earn a total return of $14,395 over three years. This will bring my total savings to $94,395.
In total, I will have $138,595 after three years, which is more than the $120,000 minimum down-payment that I need. This allocation allows me to diversify my portfolio and manage my risk while also potentially earning higher returns than a GIC alone.
Visual:
Justification:
Allocating money equally between a 1-year 3.5% annual non-redeemable GIC and stocks can be a good strategy for several reasons.
Firstly, a GIC provides a guaranteed rate of return, which can provide stability to the investment portfolio. This can be especially beneficial for individuals who are risk-averse and want to ensure that their savings are secure. With a non-redeemable GIC, the investor knows exactly how much they will earn in interest income, and this income is not affected by fluctuations in the stock market.
On the other hand, stocks have the potential to provide higher returns over the long term. While there is certainly more risk involved with investing in stocks compared to a GIC, there is also the potential for greater rewards. By allocating money to stocks, an investor can benefit from the potential growth of the market and take advantage of compounding returns over time.
By splitting the investment equally between a GIC and stocks, an investor can achieve a balance between stability and growth. The GIC can provide a reliable source of income, while the stocks can provide an opportunity for higher returns. This can help to reduce risk and volatility in the investment portfolio, while still providing potential growth over the long term.
Another benefit of this approach is that it provides diversification. By investing in both a GIC and stocks, the investor is not putting all of their eggs in one basket. This can help to spread out risk across different asset classes and reduce the impact of any single investment on the portfolio.
In conclusion, allocating money equally between a 1-year 3.5% annual non-redeemable GIC and stocks can be a sound strategy for investors who want to balance stability and growth, diversify their portfolio, and reduce risk and volatility. However, it’s important to note that this approach may not be suitable for everyone, and each individual should consider their own risk tolerance and investment goals before making any decisions.
Core Competency Reflection:
Prompt 1: “I can analyze and solve problems” – In this project, I analyzed the different investment options available and calculated the potential returns for each. I also considered the risks associated with each option and used this information to make an informed decision on how to allocate the money to achieve the desired savings goal.
Prompt 2: “I can use technology” – I used various technological tools in this project, such as Python and Excel, to perform the necessary calculations and generate charts to visualize the data. I also used online resources to research the investment options and gather information on their historical performance.
Prompt 3: “I can communicate effectively” – I communicated my findings and recommendations in a clear and concise manner in my responses to the prompts. I used proper grammar and vocabulary to ensure that my ideas were conveyed accurately and effectively.
Prompt 4: “I can collaborate with others” – Although this project was done alone, I actively sought feedback from others, such as my peers and instructors, to ensure that my work was accurate and effective. I also considered different perspectives and ideas to inform my decision-making process.
Collaboration Reflection:
In this project, I demonstrated several important collaboration skills. I showed that I can communicate effectively by presenting my findings and recommendations in a clear and concise manner. When we were brainstorming on our solution on this project, I used simple explanations to ensure that my ideas were conveyed effectively. I was active in discussion and got feedback on others to make sure the project was being done properly.