Respond to the required questions, double-spaced, APA format (source citations and reference insertions) essay (Each Question). In each Case Study, you must use at least three (3) references (in text), including the textbook (included below).
Respond to the required questions, double-spaced, APA format (source citations and reference insertions) essay (Each Question). In each Case Study, you must use at least three (3) references (in text), including the textbook (included below). Textbook reference: Berk, J. & DeMarzo, P. (2017). Corporate Finance: The Core (Fourth Edition). Boston, MA: Pearson. (This Assignment Box maybe linked to Turnitin.) 150 Words: Discussion This discussion question has two parts. Respond to both parts to receive full credit for this assignment. Part 1: Your friend is asking for advice. She is planning to retire in 40 years and wants to know what investments she should choose. She also wants to know if she should use an IRA or 401k or some other sort of retirement vehicle. Please advise her. Part 2: You have another friend that already has a sizable amount saved for his retirement, but he wants to retire in 10 years. What type of advice would you give him about what type of investment to make and as to whether or not to use a retirement plan? Include some news or advice from an article that is less than a year old that is applicable to this discussion. 100 Words (Amma Williams) – Reply and Comment on the following: I would first ask my friend what type of investor she thinks she is. If she is looking for a quick return on your investment, then growth funds maybe the best type of stocks for her. If she is willing to sit and wait for the stock to form a reputation and show what it has in store, then value stocks would be a good choice. I would also suggest investing in her company’s 401k. I know years ago companies would match contributions. Even though the company may not match, I still feel that a 401k gives you the entry into the investing world and how you can diversify your portfolio. By using a 401k, she will have access to an advisor based on the company with whom her company contracts with. She also has the option to determine if she wants to invest in only US stocks or stocks. I would also suggest an IRA (traditional or Roth) where she will have some flexibility in terms of control, withdrawals and contributions. For the friend that has saved considerably over the years I would suggest possibly investing in a self-directed IRA since they would be able to have more freedom to invest in non-traditional assets. Yoshida comments, “Investors can use self-directed IRAs to save for retirement in a tax-deferred account and diversify their assets by investing in nontraditional assets such as startups, real estate, cryptocurrencies, precious metals, commodities and private placements” (Yoshida, 2018). The difference between the self-directed IRA and the traditional and Roth IRA is the assets you are able to hold in them. Since he only has a short period of time before retirement, this option is a good addition to his large portfolio. When offering suggestions, one must always consider the type of investor the individual is. Berk shares, “Before we estimate the risk premium of an individual stock, we need a way to assess investors’ appetite for risk” (p. 346). Once individuals determine what type of investor they want to be, they can formulate a plan that will work for their portfolio. 100 Words (Amie Loraamm) – Reply and Comment on the following: In the first scenario for this week’s discussion, the individual is wanting to retire in forty years and is unsure of how to invest for retirement. In general terms this individual should invest in their company’s 401k plan because it will take less management than an IRA. A 401k is limited to a small sampling of the available investment options, and in most cases, only a few mutual funds are choices (Gough, 2019). Most employers also provide a 401k match program that all investors should take advantage of no matter the circumstances regarding retirement. But if this individual wanted to “hedge their bets”, depending on the particulars of their situation such as salary, they may consider a blend of both types of retirement accounts. If the individual wants to have more options and have more overall control of the funds, they should at a minimum contribute the matching percentage offered by their employer for the 401k program to ensure they are taking advantage of this benefit as it is factored into the individual’s overall compensation package. Once that match is maximized, funds can also be invested into an IRA to have more control over part of the retirement funds. In the second scenario, the individual wants to retire in ten years and has already established a sizeable retirement fund. My advice would be very similar to the first scenario in that I feel that taking advantage of the 401k matching program of an employer is in the best interest of the employee. If the individual’s salary permits, the individual should max out their IRA contribution and if available, contribute more funds into their 401k retirement account. But since it is typical for those approaching retirement to be in a lower tax bracket, paying the taxes upfront may be more beneficial than the returns from the 401k after it is taxed at withdrawal. I would also recommend that this individual take their existing account and roll them into an IRA to gain more control of the funds as they approach retirement. Most people roll the money over to an IRA because they gain access to more investment options and have more control over the account (Block, 2019). There is not a “blanket” answer to this question that applies to everyone due to the variance in circumstances of each individual. They may want to look into an HSA account with a high deductible health plan if they are young and do not have preexisting conditions. If children are part of the equation, education saving accounts may be a better option since the funds will be needed typically before retirement funds are available. Everyone’s situation is unique and the right answer is sometimes not the standard.