Molly expects to fully retire in 10 years so she can pursue her real interests of becoming a musician. She estimates that she will need to have $650,000 saved for her retirement. Her financial advisor provide two 10-year investment plans, ‘Mars’ and ‘Venus’, with $100,000 initial outlay and some regular investments in the later years. The details are presented below.
Plan ‘Mars’ consists of two streams, ‘Mars-A’ and ‘Mars-B’ ‘Mars-A’ goes through 4 phases. At the end of phase 1, 2 and 3 the fund will automatically be rolled over to the next phase for investment. Molly will receive the proceeds at the end of phase 4.
Phase 1: The first 2 years the investment will earn 10% return p.a. as per simple interest method. Phase 2: The following 3 years the investment will earn 12% return p.a. compounding monthly. Phase 3: The following 3 years the investment will earn 8% return p.a. compounding annually. Phase 4: The final 2 years the investment will earn 10% return p.a. compounding daily.
‘Mars-B’ will operate for 5 years, which matches with the last 5 years of ‘Mars-A’. ‘Mars-B’ requires $15,000 investment at the beginning of each quarter and will generate 12% p.a. return compounding quarterly.
Plan ‘Venus’ consists of two streams, ‘Venus-A’ and ‘Venus-B
‘Venus-A’ goes through 4 phases as well. At the end of phase 1, 2 and 3 the fund will automatically be rolled over to the next phase for investment. Molly will receive the proceeds at the end of phase 4. The investment phases are as follows:
Phase 1: The first 3 years the investment will earn 12% return p.a. compounding quarterly. Phase 2: The following 2 years the investment will earn 8% return p.a. as persimple interest method. Phase 3: The following 2 years the investment will earn 14% return p.a. compounding semi-annually. Phase 4: The final 3 years the investment will earn 9% return p.a. compounding annually.
‘Venus-B’ will operate for 3 years, which matches with the last 3 years of ‘Venus-A’. ‘Venus-B’ requires $7,000 investment at the beginning of each month and will generate 6% p.a. return compounding monthly.
Which plan will help Molly achieve her dream of retiring as a musician?