Finding Your 401k Beta Essay

650 words - 3 pages

Project 4: Finding Your 401(k) Beta

The following report will evaluate and compare the systematic risk of the stocks within a 401(k) investment portfolio. The time period for which the stocks in this investment portfolio have been analyzed is January 1, 2004 through December 31, 2014. Each stock has had a beta test and corresponding regression analysis performed. A portfolio-wide beta test has also been completed to make further detailed conclusions. The beta of each stock will be compared to that of its standard. Any observations made from the betas will also be reported. The below table represents the stock breakdown of the 401(k) investment portfolio. The portfolio consists of twelve stocks, representing seven of the major industry categories. Six of the twelve stocks come from the consumer goods industry, with half being cyclical and the other half being non-cyclical. The remaining industry categories included in this portfolio are two from industrials and one of ...view middle of the document...

Only two of the of the stocks in this portofilio were more volatile than the market during this period. Looking at beta alone, this portfolio is in good standing concerning market volatility.

All industry categories have a common beta variance, and this is because acceptable beta can widely vary depending on the industry. For instance, technology stocks commonly have a beta of over 1, offering a chance of higher returns. With this, also comes higher risks and thus increased volatility. Apple (AAPL) is the only technology stock in this portfolio, and brings in a beta of 0.97, which is less than the industry standard of over 1. According to this information, Apple would be less of a financial risk than many of its technologocial peers. During this period, Apple has also had a very high rate of return as represented by the below chart.

Apple (AAPL)

Energy stocks typically carry a beta of less than 1. The only energy stock in this portfolio is Exxon Mobil (XOM), which carries a beta less than that of its industry standard. Exxon has also had a fairly solid return during this time period. General Electric (GE), which has the highest beta in this portfolio, is still within the industry average. General Electric had the worst rate of return during the time period, which is an ineteresting correlation when taking into consideration that it had the highet beta as well. The remaining stocks were at or below their respective beta industry standards, and had fairly substantial rates of return during this period. Exxon Mobil (XOM)

General Electric (GE)

In conclusion, this 401(k) investment portfolio was less volatile than the market over this time period. Each stock within this portfolio had a beta test and corresponding regression analysis performed. Only two stocks peaked above the beta 1 threshold, while the remaining stocks were all at or below 0.97. All of the stocks were at or below their respective industry standards for beta. There was an interesting correlation between the beta and rate of return concerning some of the stocks with higher betas. The rates of returns on these stocks were less than those stocks with lower betas. All in all, using beta to evaluate this portfolio has shown just how valuable beta analysis can be in determining what stocks can be best for one’s portfolio.

Other Papers Like Finding Your 401k Beta

Boeing 777 Case Solution Essay

4524 words - 19 pages of Boeing’s defense division, because these two companies have the identical value line. I believe the McDonnell Douglas should be rejected. 25. Based on your answers to questions 20 through 23, which betas in Exhibit 9 should you use given their market indices and their regression estimation periods? We should use 0.87 as the beta in Exhibit 9. Because Boeing is in the NYSE and beta estimated with a long period is better. 26

Beta Estimation Essay

3705 words - 15 pages is probably not estimated with sufficient confidence to use. This means that over the estimation period, the price for the firm has been driven by much company specific news. That news has overwhelmed the systematic component in the estimation. As a final check of the accuracy of your estimate, you can compare your beta estimate to that of online investing information like Finance Yahoo or MSN Money. Finding the Price: All economic value

Total Rewards Program

2230 words - 9 pages days, personal leave, jury duty, bereavement days and military days in which individuals can take time off with pay. By offering these paid leaves they are allowing employee’s flexibility with their schedule, which in turn will keep the employee happy. Recruitment and retention are a large issue that companies are facing; they are having a hard time finding top performers, skilled IT workers, and workers for entry level positions. It is

Wacc vs Apv

1191 words - 5 pages they raise more equity. As part of their risk management processes, some companies add a risk factor, say 1.5%, to the WACC in order to include a risk cushion in their project evaluation. The logic behind this is simple as the process of finding WACC involves a large degree of estimation: you need to estimate the risk free rate, the beta and the market return. So next time you tackle a WACC question, remember this process. In real life the process is similar, just more complicated as a company may have different debts with different interest rates.

Portfolio Managment

2236 words - 9 pages other such things that may arise as life continues. He agreed and so, I set his minimum yearly rate of return to 15.4 percent. I then explained some of the basic things to look at when examining a company to invest in such as, beta, P/E ratios, market capitalization, etc. We then went over and I explained to him the sheet of high quality capital, and high quality growth stocks provided by D.A. Davidson. We were able to come up with a

Social Security - Privatize Yes/No

2506 words - 11 pages until I’m seventy years old, what will I be doing? The government needs to take a look at some of the guidelines they enforce now, ranging from 401K limitations to IRA’s, Roth funds, etc. You are limited to 16% of your salary for 401K contributions, but most places don’t have an equal distribution of highly compensated to non-highly compensated so if you are on the high end you are limited to 3-4 percent deductions. There are similar limitations

Stock Investment Analysis

1881 words - 8 pages volatility measures used in analyzing the returns of the portfolio; Beta is used to quantify the exposure to market risk of a well-diversified investor, and a method is needed to turn that measure into a risk-adjusted discount rate The beta measurement higher than 1.0 indicates that a fund’s historical returns have fluctuated more than the bench market index; R-Squared measurement against an appropriate benchmark explains the level of association

Impact of Ict on Accounting Practice in Nigeria

1690 words - 7 pages require considerable staff and management resources. Audit plans should consider all areas of the business and focus resources on those with the highest risk. Once you have assessed these risks, you can determine how often you perform audits and evaluate whether your staffing levels need adjustment. Inherent risk can also be considered as Significant risks. Unlevered beta requires the ratio between the equity value and the value of the firm measured

M&a Challenges

1708 words - 7 pages individuals to preemptively leave the organization. An assessment by human resources to determine which skills and competencies and the individuals that meet the criteria should be completed. Informal fact finding by talking to individuals below senior management should be performed to gage the available talent (Lee & Park, 2013). The organization structure, position title, compensation and company culture should be known when discussing

A New House Decision

1933 words - 8 pages financial security. If you can afford a monthly mortgage payment, you will have financial security for years to come. There are many perks to homeownership. First and foremost, it is yours. You will no longer be paying in on someone else’s (i.e. your landlord’s) 401K plan. You will be paying into your own future and the future of your family. There are many other good incentives for owning your own home. The house values can rise and fall but over

Business Analysis

992 words - 4 pages equity (10.36%). In solving for the percentage of debt I simply subtracted my percentage of equity from 100. Lastly in figuring the tax shield, I used the rate of 38%, which was obtained by adding state taxes of 3 percent to the U.S. statutory rate from Exhibit 5. 2. If you do not agree with Cohen’s analysis, calculate your own WACC for Nike and be prepared to justify your assumptions. This is the formula I used in calculating Nike’s WACC

Related Essays

Formal Report: Engl: 227

2413 words - 10 pages team, or entry level being the alpha and beta tester. They may be the ones who test the software after it's been made. They may make small changes to the software, or tell what changes needs to be made. They don't actually make the software. If you prefer to work on your own, the only way to do that would be in a graphical design. This is the most sure fire way to be an independent worker. 2. Education The education required is normally

Fin 355 Assignment 1 Stock Analaysis

1865 words - 8 pages demonstrates a clearly defined strategy for picking securities. The fund is an actively managed since its inception. The fund is classified as a large blend fund and falls under the large capitalization growth category. With a 36% turnover rate with 2.9 Billion is total assets. A minimum of $2,500 initial investment is needed for this fund. You can find large-cap stock funds in most retirement 401K plans. In general when one thinks about

New Issues Puzzle Essay

1330 words - 6 pages weighted average beta of the stocks I sold short. To calculate the weighted average beta for each side I would need information on the individual betas of each stock, as well as their respective investment amounts. The goal is to make the appropriate trades so that the betas from the long side and short side of your strategy cancel each other out. Investment selections: ACO: investment = 45.72 * 175 shares = 8,001.00 CNSI: investment

Corporate Finance Essay

2548 words - 11 pages beta for the Collinsville investment. We can estimate asset betas by 1) looking it up in Bloomberg, 2) finding “identical twins” and comparing their betas, and 3) un-levering the beta from the company itself. Here, using 2 and 3 we are interested in both the asset beta of Dixon as well as the asset betas of companies whose assets are similar to the project (e.g. companies that own plants that produce Sodium Chlorate). Here, assuming a low