Investments for the Future

In Unit 2 for my Senior course, Economics: Risking Value, we went over the topic of wealth. Accumulation and distribution were two main points we focused on. We also studied different types of economic markets and systems while investigation the classification systems of wealth in our society. We learned how to add, multiply, and use different types of functions with matrices. For one of our field experiences, we went to see Sara Samuels, a financial advisor. There, we all asked questions about her profession and what it’s like to be in the business. Overall, I thought it was a fun and informative experience. In addition to our FE, we also talked to our former director, who explained to us his philosophy on investing and the right times to invest. I enjoyed the personal connections this unit made to issues I may have to deal with in the future. For our action project, we were asked to create our own investment portfolios that would help us set our own goals when trying to make a profit. Below is my Investment Portfolio, thanks for reading!

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First off, I’d like to explain my values for the companies I’ll be investing in. I value companies that drive innovation. I think innovation is what keeps businesses booming and drives our society forward. I’m not really focused on family or environment-friendly companies, but more on the ones who are interested in making money. If they’re making a profit, I’m interested in investing. My values revolve around development, whether this means economically or generally. I believe that if we’re not learning we’re wasting time. It’s important to me to learn about life and gain as much knowledge as possible. I’ve listed my SMART goals for the upcoming years below:

• 1-year goal: To break even or turn a small profit on my investments, since it takes most people about a year to make a profit.
• 5-year goal: Pay off any existing debts I have 
• 25-year goal: Have completely paid off my own house and car

After taking the Rutgers University Risk Tolerance Quiz, I learned that I have an average/moderate tolerance for risk. I scored a 27 out of 47, meaning I'm near the middle; I'd say I learn more towards 50/50 risks. For this portfolio, I decided to stay on the safe side when investing in companies. I chose businesses that have been along for a long time and are likely to be making in the future.

Risk Tolerance Quiz. SC. 2016

Taking my time horizon into account, I'll be mostly investing my money into my 25-year plan. The more time the stock has to grow, the more the payout will be as long as the stock market continues to do well. With this, I decided to invest the least money into my 1 and 5-year investments because I'll probably be needing money more often later than within the next few years. Also, I chose the companies I thought would be making the most profit for my 25-year investment.

Apple:

• Apple has a high economic moat, meaning there’s a low chance of them have any threatening competition in their industry. They have a P/E ratio of 13.74 and a dividend yield of 2%. Not only does this company demonstrate my values well, but the quality of their materials is outstanding, and a lot of their products have become the social norm to own. The iPhone, for example, has become a trend in the past 10 years, and I think there are many people who wouldn’t feel comfortable leaving the brand. From the graph below, you can see that from the past 5 years Apple’s stock has risen significantly, and I believe it will continue to rise in the future. For me, this will be a long-term investment, because I think that Apple grows and will be around for a long time.

Disney:

• While Disney’s main focus is not towards innovation, I do believe that they’re a rapidly growing company, and they sure know how to make money. They are part of the entertainment industry, which is something I think everybody needs and uses. Within the next few years, they plan to release a few new Star Wars movies, which I think will send their stock prices through the roof. Star Wars alone is an industry itself, and the previous release made over 30 billion dollars in revenue. From the graph below, you can see that their stock price has nearly tripled in the past five years. While it does look like it’s decreasing now, I’m sure it will skyrocket once they start releasing these film(s). They have a P/E ratio of 16.84, and a dividend yield of 1.51%. This investment will be short term for me, as I don’t know what they plan to do after the Star Wars franchise ends, and I’d like to stay on the safe side.

Microsoft:

• Similar to Apple, Microsoft also strives for innovation, which is probably what attracted me most toward investing. Their CEO, Bill Gates, claims that innovation is what keeps our world moving forward. Recently, Microsoft has shaved their old image and created a more fresh one, which is something that draws my attention, because this shows how devoted they are to change. Microsoft is part of the technology industry, which is no longer a want, rather, it’s becoming a need in today’s society; since Microsoft is in charge of over 90% of the software run on computers today, I think it’s a good idea to invest in them. As you can see from the graph below, Microsoft is at an all-time high in the past five years. To me, it looks like it will continue to rise. The company has a P/E ratio of 28.63, and a dividend yield of 2.61%. This investment will be a mainly long term investment for me since I think the products and software Microsoft will be releasing will take a huge effect on their stock prices.

Portfolio I - One-year investment ($2960.09)

• 17 shares of Disney @ $93.85 ($1595.45) - 53.9%
• 12 Apple Shares @ $113.72 ($1364.64) - 46.1%

These two companies have an ROI of 17.79%. Hopefully, this ROI will stay the same, and I'll be able to turn a profit on my investments. This will result in a $503.22 payout.

Portfolio II - Five-year investment ($15,215.06)

• 39 shares of Disney @ $93.85 ($3660.15) - 24.1%
• 193 shares of Microsoft @ 59.87 ($11,554.91) - 75.9%

Combined, these two companies have an ROI of 82% (for a five-year investment). By this point, I should have made enough money to pay off any of my debts (student loans, taxes, payments, etc.). This will result in a $12,476.35 payout.

Portfolio III - Twenty-five-year investment ($30,948.50)

• 270 shares of Microsoft @ 59.87 ($16,164.90) - 52.2%
• 130 Apple Shares @ $113.72 ($14,783.60) - 47.8%

Together, these two companies have an ROI of 462.5% (for a twenty-five-year investment). At this point, I should have made enough money to reach my goal of owning a car and house. This will result in a $143,136.81 payout.

Total Investment Portfolio Value: $156,116.38

Below I've posted a pie chart of my total investment portfolio, to help better understand the amount invested for each payout:

Portfolio Data. 2016. via MetaChart

I'm happy with the companies that I chose. Overall, I think that my 3 business's stocks will continue to rise and keep a steady ROI. The economic moats of these companies were a big factor I thought of when choosing what stocks to invest in. Protection against a business is extremely important because nowadays it's a cut-throat society; companies can take over others within months. The values of the companies I chose were also a big determinant. I wanted businesses that were focused on innovation, and it was essential to me that they weren't planning on putting out the same product in the future. Something I learned while picking my stocks was a market cap. This is the total value of all the company's stocks. I payed attention to this because I wanted to make sure they were experienced and had a lot of other's investing in them as well.

Assumptions:

1. I assume my twenty-five-year investment will make the most money, therefore I invested the majority of my savings into it.
2. With the increase in Disney's stocks after the first Star Wars movie release, I assume that they will continue to rise again after the upcoming releases.
3. The stock market won't crash during the 25 years I'm investing.

Sources:

• "Apple Inc." AAPL Stock Performance of Total and Trailing Returns. N.p., n.d. Web. 27 Oct. 2016.
• Downie, Ryan. "Buffett's Moat: Is Apple's Competitive Advantage Sustainable? (AAPL)." Investopedia. N.p., 20 June 2016. Web. 29 Oct. 2016.
• Harden, Seth. "Star Wars Total Franchise Revenue." Statistic Brain. N.p., 25 Jan. 2016. Web. 28 Oct. 2016.
• “Investment Risk Tolerance Quiz.” Rutgers. N.p.,n.d. Web. 28 Oct. 2016. 
• "Walt Disney Co. (DIS) | Valuation Ratios." Stock Analysis on Net. N.p., n.d. Web. 25 Oct. 2016.