Lesson 21: Simulation to Compare Retirement Savings Performance by Asset Allocations

April 10, 2019

Review:

• Loops
• Hacker Statistics Assignment
• Exam 3 on Wed, Apr 17
• Review for Exam 3 on Mon, Apr 15

Presentation:

• Stock market simulation project
  • Assumptions
    • Stock market returns are normally distributed with mean=11.84 and standard deviation=16.96
    • Aggregate bond returns are normally distributed with mean=7.88 and standard deviation=6.86
    • Initial investment balance = $10,000
    • Length of simulation = years until you reach age 65
    • Number of iterations for each simulation = 100
  • Produce 4 investment/retirement portfolio simulations
    1. 100% stocks + 0% bonds
    2. 80% stocks + 20% bonds
    3. 60% stocks + 40% bonds
    4. 40% stocks + 60% bonds
  • Comparison of simulation output
    • Create histograms to illustrate distribution of resulting ending balances
    • Calculate mean and standard deviation of ending balances
    • Produce 95% Confidence Intervals to estimate ending balances
    • Answer these 3 questions
      1. Which portfolios produced the highest and lowest ending balances?
      2. Which portfolios produced the most and least volatility?
      3. Which investment portfolio would you choose for your retirement? Explain why.
  • Deliverable
    • Produce a 1-page slide/doc to illustrate and explain results
    • Must include a link
      • to Repl.it program; or
      • to Google Sheets file
    • 1 piece of paper only (use front and back)
    • Due in class on Wed, Apr 17 (with Exam 3)

Assignment:

• Complete Hacker Statistics project and all DataCamp assignments
• Work on retirement simulation project