In the sphere of finance, it is said that “there is no free lunch”

 

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.

Sample Solution

  • sters were put on the bins to highlight what went in them like the ones below, they were also put on the wall above the bin.
  • On the bar level we set up 2 cadges, 1 for cardboard and 1 for all the full bags of plastic, cans etc. A poster was again placed in the area detailing how these were meant to be laid out.
  • Choosing an incentive, in order to make it realistic and cost effective it was difficult in choosing an appropriate incentive as this was an overall team effort and could not be reported on individual staff merits easily. It was decided between the management team that we would break it down into each period (month).
    • Period 9: if the % of recycling achieved that period reached a minimum of 60% the staff would get a case of monster and a basket of sweets and chocolate to share that weekend Period 10: if the % of recycling achieved that period reached a minimum of 80% the staff would each receive a free meal each.
    • Period 11: If the % of recycling achieved that period reached a minimum of 95% then I would arrange for the pub to be covered all day and night for staff paintballing then a night out.
  • Once all bins, cadges and posters were in place, we took the staff around the different areas and showed them the new bins and cadge layout and what went where. This was done as a pre-shift briefing and took 5 – 10 mins. We also told them about the incentive which they were all very excited about and the financial gain that the recycling would encounter which could then potentially give us more bonus through our profit bonus.
  • Managers were told that they needed to monitor the bins daily throughout their shift and coach anyone not complying to the new processes.

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

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