Planning My Economic Future

This is the Unit 2 action project for my Economics course. Unit 2 was titled Wealth and Wages and investigated the ways wealth can be accumulated as well as distributed. Students studied major economic systems and analyzed different conflicts involving governments and the market. We learned about free market capitalism and the economists that pushed for its implementation. Students learned about the stock market and how to make investments. The concept of time was approached from various perspectives in the unit. I really enjoyed all the connections to my personal life. This unit reinforced the idea that economics is a way of thinking that can be applied to many areas of life. The unit wrapped up with an action project that asked students to think about their own economic plan. The project was centered around this hypothetical situation: 18 years ago, your guardian angel set up a college savings plan for you with an initial investment of $8,500. Your angel contributed $50 each month to the college savings plan ($600 yearly). After 18 years at an average annual interest rate of 7%, compounded annually, the plan is now worth a hefty lump sum. Yesterday, you cashed out your plan and deposited the money in a brokerage account to invest on your own. Students had to first determine what that amount was and then use it to create and analyze three economic portfolios. Making these portfolios was a wonderful way to take everything I've learned in the unit and course and show my mastery of the knowledge. I really enjoyed this project and thought its connection to the real world was wonderful. Im very happy with how my project turned out!

After analyzing the information about the college savings plan set up by my guardian angel I have determined it's current value. In order to begin planning for what I hope to be a prosperous and secure future I have determined to cash out and begin investing. After completing several calculations I have come to the conclusion that the college savings plan in my name is currently worth a total of $49,128.87.

Before I dive into the details of my portfolios I would like to give an explanation of who I am as an investor. An investment philosophy is a set of principles that help guide an individual's choices when investing. My personal investment philosophy closely resembles several of my life philosophies. I would classify myself as a high risk person and investor. I see risk as an opportunity to grow personally and financially. Another large component of my investment philosophy is wanting to make socially responsible investments. I’m looking to make investments that align with my moral compass. A contrarian mindset is the last element of my investment philosophy. In investing, this manifests through making investments in opposition to the majority.

My high risk mindset can best be represented by this investment risk tolerance quiz I took online from finance professors at Rutgers University:

Risk Tolerance, Rutgers, 2016

The time horizons I have set for my investment goals are quite long. My short term plan is focused on growing and securing my future finances. Time horizon effects my investment strategy because my goals require more money as time goes on. In order to prepare for that, I’ve allowed my largest investment to also be my longest with the hope that steady growth over 25 years will result in a hefty return on my investment.

I created three SMART goals to help me create my portfolios and guide my investing. SMART goals are Smart, Measurable, Attainable, Realistic, And Timed goals. The specific goals I have created for myself are investments that are going to help me manage and progress my career as an artist. My three goals are:
1-year goal: Rent a space and have an art exhibition ($2500)

5-year goal: Pay off all existing debt as well as debt accumulated during college ($40,000)

25-year goal: Own a huge space for a complete art studio ($150000)

The type of companies I value the most are ones that balance their social and environmental footprint with their drive for profit. I believe that the profits produced by a company shouldn’t come at a detriment to the world. The companies I value operate using morals and ethics that are similar to mine. I attempt to identify companies that are working towards the things I want to see come into fruition in the world. An analysis of my choices:

Facebook (FB): I chose Facebook because it is company I use and have seen grown in a short period of time. I also love their values: Be bold, focus on impact, move fast, be open, build social value. They are working on a WIFI initiative that is attempting to spread internet which I strongly agree with and adore. Facebook also owns Instagram, WhatsApp, and Oculus Rift. In an economic context, Facebook has a P/E of 63 which is relatively high compared to the technology sector's P/E of 26. Since becoming a publicly traded company in 2012, Facebook's stock has been constantly growing with no major downticks. The market's sentiment of Facebook is bullish, which I agree with regardless of my usual contain mindset and strategy. I hope my assumption is correct that their current initiatives will become major successes and their constant growth will continue for many years.

Facebook Stock, Google, 2016

Alphabet Inc (GOOGL): Alphabet Inc is a multinational technology company that specializes in internet based services and products. Alphabet operates through various segments, Google being the most widely known. I believe the work they have done and are doing has an essential place in shaping our future in the best way possible. Alphabet and is various counterparts have been at the forefront of technological advancement and innovation for many years and don't plan on stopping any time soon. They have a plethora of amazing companies and products under them such as YouTube, Android, and Chrome. Economically, Alphabet's growth both quarterly and annually is significantly larger than the industry's average. Their yearly growth is 15.40% compared to the industry's average of -.057%. Looking a bit into the future, Alphabet is projected to grow 18.90% next year while the industry is only projected to grow .28%. Alphabet is a perfect company for me as investor because they share similar morals and work on projects that I believe will enhance life for everyone. They also have been following a steady pattern of growth and market projects say that will continue on into the future.

Alphabet Stock, Google, 2016

Canadian Solar Inc (CSIQ): Canadian Solar is a global energy provider with business in over 20 countries on 6 continents. They manufacture solar modules and provide solar energy solutions. I believe renewable energy is going to be the future of energy. Canadian solar is major player in the industry and has continuously innovated and pushed their limits. They have a P/E ratio of 5.5. Since going public in 2006, the stock has had its fair share of ups and downs. Currently the stock is at $14.76 which is low in comparison to the rest of the year. I believe that slowly but surely this stock is going to gain stability and begin to steadily grow. I believe that an energy revolution is going to take place over the next few decades and when it does I project Canadian Solar to be on top. 

Canadian Solar Stock, Google, 2016

Oil Future (/cl): This is unlike the previous stocks because this isn't a company I'm investing in but rather a commodity. Futures are financial contracts that facilitate the buying and selling of physical commodities at a predetermined future price and date. The oil future I've decided to trade is /cl and is traded in contracts which equate to 500 barrels of crude oil. I've decided to take my thinking from my CSIQ and play into the other side of it. The renewable energy boom I believe we are going to start seeing will inevitably cause the decline and eventually the demise of oil. My investment decision to short oil futures is due to a desire to want to see a happy and healthy environment that will benefit everyone. I hope that over the course of the next several decades we will start to see a rise in renewable energy and a decline in harmful energy sources such as oil, coal, and nuclear. I hope my investment in shorting oil futures will be both a benefit to the entire world as well as my future personal finances.

/cl Future, Bloomberg, 2016

Portfolio 1 (1Year):
$2164.28
4 shares of Facebook @ $131.29 ($525.16) 24% portfolio
2 shares of Alphabet @ $819.56 ($1639. 12) 76% portfolio

Portfolio 2 (5Year):
$21682.64
84 shares of Facebook @ $131.29 ($11028.36) 51%
13 shares of Alphabet @ $819.56 ($10654.28) 49%

Portfolio 3 (25Year):
$25281.95
858 shares of Canadian Solar @ $14.76 (12664.08) 50%
Shorting 259 contracts of /cl @48.70 (12613.30) 50%

$4.57 remaining from the original $49128.87

The stock sector I primarily focussed on was the technology sector. I believe that technology is going to be a powerful industry as we continue to venture into the future. My portfolio is based on the notion that we are moving into a time where technology will become increasingly integrated into our societies and lifestyles. The two technology companies I decided to invest in, Facebook and Alphabet, have clear missions and goals for the future. I want to put my money where my mind and heart is at. My 25 year portfolio is specifically focused on environmental technology. Investing in a renewable solar energy company was a no brainer for me. Shorting the oil future helped reinforce my idea of a clean energy future. I wanted to balance my desire for profit with a sensible peace of mind. I made sure the investments I was making were going to companies with positive intentions and a clear cut plan for their future growth. The investments I made were partially influenced by an individual. My father frequently shorts oil futures for economic reasons and I recognized that it personally interested me and I wanted to short it as well. Diversification was a key ingredient to my investment strategy. I really absorbed the idea of spreading out your investment from Sarah at Northwestern Mutual. There are so many assumptions made in this project. One of the biggest being that we don't know what the ROI will be for each stock as time passes. Another assumption being made is that we will adhere to the perimeters of the portfolio. Finally, I am assuming that these companies will continue to grow similarly to how they currently are.

Sources:
"${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com." Reuters. Thomson Reuters, n.d. Web. 29 Oct. 2016.

By Taking This Quiz You Will Be Contributing to a Study on Measuring Financial Risk Tolerance. Your Results Will Be Recorded Anonymously. We Are Not Collecting Any Identifying Information. "Investment Risk Tolerance Quiz." : Personal Finance. N.p., n.d. Web. 29 Oct. 2016.

"CL1 Commodity Quote." Bloomberg.com. Bloomberg, n.d. Web. 29 Oct. 2016.

"Facebook, Inc. Class A Common Stock (FB)." NASDAQ.com. N.p., n.d. Web. 29 Oct. 2016.

In, By Or Used. "FB Profile | Facebook, Inc. Stock - Yahoo Finance." FB Profile | Facebook, Inc. Stock - Yahoo Finance. N.p., n.d. Web. 29 Oct. 2016.

In, By Or Used. "GOOG Analyst Opinion | Analyst Estimates | Alphabet Inc. Stock - Yahoo Finance." GOOG Analyst Opinion | Analyst Estimates | Alphabet Inc. Stock - Yahoo Finance. N.p., n.d. Web. 29 Oct. 2016.

Staff, By Investopedia. "P/E Ratio: Using The P/E Ratio | Investopedia." Investopedia. N.p., 2015. Web. 29 Oct. 2016.

"Technology Sector - Yahoo! Finance Industry Browser." Technology Sector - Yahoo! Finance Industry Browser. N.p., n.d. Web. 29 Oct. 2016.