Reference no: EM131947951

Question: APA 250 words or more please respond to both

1. The first thing I would tell my friend is to speak to a financial advisor being as though I don't know much about investing. But if she were persistent in getting my input, I would advise her to invest in stocks since she has enough years to ride the stock market wave before she needs to cash out. According to an article by Carlozo (2017), the vice president for Matson Money stated that stock investments are one of the best tools to create wealth. They are needed for portfolio growth as well as to outpace inflation.

I would also suggest that my friend contribute to her 401k plan at work especially if she works for a company that matches her contributions. The 401(k) also allows you to save more money per year. In 2017 employees were able to contribute up to $18K to their 401k if they were under the age of 50 (Hundnett, 2017). The IRA only allowed a contribution of $5K and does not offer an option for employers to match contributions.

I would advise my friend who would like to retire in ten years to invest some of his future earning into growth stocks since they have the potential to gain value quickly. I would not advise him to use any of the money he already saved for these types of shares because growth stocks also have the potential to go "belly up" quickly since they are typically from newer less established companies (Berk &DeMarzo, 2014).

2. If I had a friend that was planning on retiring on 40 years, I would ask her few questions first to see what he best options would be. If your employer's 401(k) or similar retirement plan offers matching contributions, you should be contributing enough to take full advantage of this. In other words, if your employer is willing to match your contributions up to 5% of your salary, this is the least you should be contributing (Paul, K. 2017). If you're doing this, you can then put your additional contributions into your plan or an IRA, and both options have advantages. The obvious advantage of increasing your 401(k) contributions is simplicity. All your retirement savings will continue to be in one place, and 401(k) investments require minimal maintenance.

IRA can give you far more control over your retirement savings. While 401(k) investments are generally limited to a selection of a few dozen mutual funds at best, in an IRA, you can choose from virtually any stock, bond, or mutual fund you want. If you want to put some of your retirement savings in Apple stock, you can do that in an IRA. There are also a few reasons you can tap into your IRA early that don't apply to your 401(k).

If I my friend that has a sizable amount saved for his retirement, but he wants to retire in 10 years. I would want them to make the maximum annual contribution limits into an employer-sponsored fund, such as a 401(k). As you move up the career ladder, put raises into your retirement savings, don't spend them. If you can't afford to stash all your pay increases into retirement funds, gradually increase contributions over time. Whether your sizable nest egg means you're on track in the sense that you'll be able to maintain your standard of living in retirement (Paul, K. 2017). After all, your retirement savings accounts at a given age, but a variety of factors including how much you earn, the age at which you retire, whether you'll qualify for a traditional pension, the retirement lifestyle you envision, how long you'll live and whether you're able to manage your savings in retirement without depleting your assets too soon.

Still, you can get a quick sense of how you're doing by going to a calculator like Fidelity's Get Your Retirement Savings Factors. This tool helps you estimate how many times your annual salary you should have tucked away in retirement accounts at ages ranging from 30 to 67. What's more, it can show you how much the amount you should have accumulated by a given age can vary depending on when you plan to retire and your expected lifestyle in retirement.