In the sphere of finance, it is said that “there is no free lunch”. The meaning of this expression is that higher return must be paid for by accepting higher risk.
In prior discussions, we have examined the behavioral concepts of loss aversion, savings as a loss, inertia, present self versus future self – these are some of the behavioral traits that discourage saving for the future.
But suppose we overcome all these behavioral barriers to savings, we then need to decide what to invest in. Now, return varies with the category of investment – see below:
Average rate of return
Bank account 2%
Government bond 3.5%
Corporate bond 5.5%
REIT (real estate) 8%
S&P 500 10%
Nasdaq 100 15%
The plot below gives the outcome of investing $200/month ($2,400 per year) for 40 years in the respective index fund:
Plot of 40 year investing at different rates of return.png
If all were of equal risk, then obviously we should choose the Nasdaq 100 and obtain 15% returns. But the reality is that return reflects risk – see the plot below of the Nasdaq 100 index (pink top line), S&P 500 index (blue middle line) and bond index (green bottom line):
SPY_YahooFinanceChart SPY QQQ BND.png
In finance, we equate higher risk with higher volatility / movement of the asset price, so the Nasdaq 100 is considered the riskiest under standard theory. To see this, consider a pensioner who lives off of the return from their investment account; with the Nasdaq 100, their returns are in the range +/- 30%; with the S&P 500 they are in the range +/- 20%; and with the bond fund they are almost constant (reflecting constant coupon payments). Thus, for the pensioner (this will be you one day), higher average return comes with greater uncertainty / risk of year-to-year return.
Question: looking at the above plots, which of the three index funds would you prefer to invest in over the next 40 years, for your long-term retirement account. Explain your choice, considering (a) your personal ability to tolerate risk and (b) your goal for retirement lifestyle.
Now that this was all in place, everyone was aware of what they needed to do and the potential gain it would have on each individual and the pub and company as a whole it was time to begin.
The reason I chose this objective and to take these steps is due to a number of reasons first one being that we get money back for recycling, knowing that we could achieve the targets set by the company and that it helps the environment. Talking to the management team and getting their thoughts and ideas through managers meetings, another was my own ideas and what I thought would work but through it all I took a lot from a fact sheet online (all-recycling-facts) which gave lots of basic advice one in particular was to start with yourself and by being confident in recycling yourself, your staff would be potentially more