BAFI3184

Assignment 1
[Document subtitle]

Student’s name: Ly Anh Tuan

Student’s ID : s3818425
Lecturer : Pham Thi Minh Thuy
Words : 1470
Contents
Question 1...................................................................................................................................................2
Question 2...................................................................................................................................................3
Question 3...................................................................................................................................................4
Question 4...................................................................................................................................................4
Question 5...................................................................................................................................................5
Question 6...................................................................................................................................................7
References...................................................................................................................................................9
Appendix...................................................................................................................................................10

Question 1
Pre-retirement age period Average monthly Average monthly Net (Income-
income (millions expense (millions expense)
 VND) VND)

25-40 63,333,333 37,754,773 25,578,560

41-65 76,666,667 55,522,423 21,144,243

Average amount of pre- 70,000,000 46,638,598 23,361,401

retirement (25-65)
Table 1: Changes in the pre-retirement budget planner in income and expenses-

Figure 1: monthly net and spending balance from 25-40

Figure 2: monthly saving balance from 25-40

 Figure 3: monthly net and spending balance from 41-65

Figure 4: monthly saving balance from 41-65

Question 2
Average monthly Average monthly Net (Income-
income (millions expense (millions expense)
VND) VND)

Pre-retirement (25-65) 70,000,000 46,638,598 23,361,401

Post-retirement (65-85) 23,000,000 28,712,773 (5,712,773)

Table 2: Income and expense of pre-retirement and post-retirement

From Table 2, in terms of pre-retirement, my average monthly income is higher than the
expense, leading to positive net income (23,361,401). Hence, not only can I cover my
expenditure but also have monthly savings. From my post-retirement budget planner, both my
income and expense have witnessed a significant drop. When I am 65 years old, despite having
money from National Social Insurance, the major problem is that my payment has been
decreased by 70% due to retirement. Moreover, when I get older, my priority is for my health.
Thus, my health and insurance expenditure has risen remarkably, which takes up around 30% of
my expense compared to around 7% or 8% before retirement. Also, due to more spare time, I
start to adopt a dog as well as traveling more so, hence adding up costs. By contrast, other
expenses, including daily living, homes expense, and transportation, have been reduced because
of my lower demand. Nevertheless, they are not enough to stop the increase in total expenditure.
Consequently, in post-retirement, it is expected that I mostly cannot cover my expense
(28,712,773) with my monthly income (23,000,000).
The replacement income that I need in each month when I am retired is:
RI=Total expense – Total income = 28,712,773 - 23,000,000 = 5,712,773
Question 3
I apply the Present value of Annuity Due formula to determine the number of funds I must have
saved and invested by my 65th birthday to pay for my retirement.

1−( 1+ r )−(n−1 )
PV65=RI+ RI [ r ]
RI= 5,712,773
r =7.9%/12=0.0065
n= (85-65+1) *12=252

1−( 1+ 0.0065 )−(252−1)

 PV65=5,712,773+ 5,712,773 [ 0.0065 ] = 711,748,681.5

In conclusion, I must save and invest 711,748,681.5 VND by my 65th birthday to achieve my
desired retirement plan.

Question 4
a)

Table 3: Average rate of return of each asset class

With 18 points in Time Horizon and 26 points in Risk Tolerance that I got from the Investor Risk
Profile demonstrates that I am moderately aggressive because I accept to commute a higher risk
for higher return in the long term. Using current income is unnecessary because I have a positive
monthly net income before retiring based on my budget planner.
Therefore, my preference toward equity will be 45% large-cap equity (Vingroup, Techcombank),
15% small-cap equity (HoaPhat), 20% international equity (Amazon) .15 % of my fixed income
will be for government bonds because of its lower risks compared to corporate bond.
The Weight Average Rate of Return (annually) I expected to earn from my long-term
investments is:
WARR =45% x 9.18% + 15% x 11.07% + 20% x 8.91% + 15% x 4.86% + 5% x 0%
 = 0.083 or 8.3%
b)
To have enough funds to retire at age 65, I need to start saving and investing each month when I
am 25.
 Present value of fund at 65 years old is equal to Future value at age 25.
 PV65= FV25
( 1+r )n −1
FV25 = A [ r ]
( 1+r ) =711,748,681.5

 A is number of moneys need to save and invest each month.

 r is monthly WARR: r=8.3%/12=0.0069
 n is number of cash flows that forms the annuity: n= (65-25) x 12 = 480

( 1+0.0069 ) 480−1
A [ 0.0069 ]
( 1+0.0069 )=711,748,681.5

 A=186,662.22
In conclusion, I must have saved and invested nearly 186,662 VND each month to accumulate
sufficient funds to retire.

Question 5
Based on question 4, my attitude toward risk is moderately aggressive who has the willingness to
endure a fair loss to earn a higher return in the long run. Specifically, I will be single for the rest
of my life as well as my expense can easily be covered by my salary, so I am likely to take a risk
by investing around 80% in stocks, and the rest is for bonds. Thus, I am certain about the future
risk but not overconfident because I still save a small portion for safer assets instead of putting
all in stocks like an aggressive allocation. Due to my knowledge about equity through the CFA
course, my most significant investment is for big-cap companies, then is international firms, and
last is small-cap. For choosing international equities, diversification is the most vital advantage
when investing globally (Jain,n.d). A diversified portfolio provides higher stability amid market
volatility. An insignificant connection between stocks is experienced when investing across the
border, meaning the volatility in one market cannot influence other assets. Hence, my basket of
stocks will be less volatile and minimize the losses. Small-cap stocks have higher growth
potential and appear to deliver higher long-term returns than large-cap (Gresham, 2019).
However, they are riskier because of their shortage of resources and more chances of going
bankrupt amid a market downturn (Bowman 2020). Furthermore, large-cap companies are a
better option as their businesses are more diversified and have a global footprint that reduces
their risk of failure, so are the risks to investors (Jackson ,2020). For example, small caps were
poorly suffered from the Covid-19 pandemic; from Figure 5, after three months, large-cap (S&P
500) had outperformed small-cap (Russell 2000) by nearly 10%, although both were affected.
Therefore, I can maximize my outcomes from the investment plan partly because of mitigating
the possible risks.
When I retire, according to my post-retirement planner, my income would be insufficient to
afford my expense, so my attitude toward risk will change to conservative allocation with half of
my investment is for safer assets like a government bond or treasury bill to seek to a more stable
income. Consequently, my outcomes will decline from an average annual return of 9.9% to
8.0%. My decision is reasonable because there is a relationship between age and performance as
a person's cognitive abilities reduce when they get old, and so is their investment performance
(Korniotis & Kumar 2013). Age plays a vital role in changing the risk tolerance of investors. For
example, based on Figure 6, it seems that when investors become old (51-60), they tend to be
safer as the numbers of them choose low risk (28) are higher than high risk (6) and moderate risk
(8), unlike when they are young.

Figure5: Large-cap index (S&P500) and small-cap index (Russel 2000).Reproduced from Brian
2020

Figure 6: Associations between the risk profile of the investors and their age. Reproduced from
Charles & Kasilingam,2013

Question 6
The outbreak of COVID 19 has rocked the economy across the world as many nations have been
lockdown several months, accelerating the unemployment rate due to the shutdown in business
(Lee,2020). Bankruptcy increased in many industries because customers had to stay at home
(Naveen & Anders 2020). Deep recession occurring worldwide caused global GDP growth in
2020 to shrink to 4.3 percent, three-time than the financial crisis in 2009, and expected to recover
to 4.7 percent in 2021 slowly (United Nation,2021). In 2020, the outbreak altered Vietnam's
labor market, with 40 percent of workers losing their job while 30 percent having their livelihood
reduced (Dat, 2020). Furthermore, the reduction is between 20 and 25 percent (Quy,2020). For
this reason, my investment plan could be disrupted due to the risk of being laid off or getting my
income cut which led to lower gains.
The financial segment, which was described as a vulnerable sector during economic contraction
with the risk of a rise in bad loans and extraordinary withdrawals of deposits, was the most
damaged sector on Vietnam's stock markets during the COVID19 pandemic. Financial firms'
stocks are among the assets that have been hit severely during the pandemic due to the
significant risk of increasing bad debts and abnormal large-scale withdrawals, which could
trigger corporate crises or even bankruptcy (Anh & Gan 2020). It is true because Mid-sized
banks had a worse performance in 2020, including my big-cap stocks (Techcombank) plunged
by 3.2 percent (Daisy, 2020). Thus, reducing the performance of my investment decision.
Besides, I should consider changing my investing in Techcombank to Eximbank, which
increased by 7 percent.
From my portfolio investment, my international stock (Amazon) had a great year in 2020, thanks
to Covid-19, as it had changed the consumption patterns (Randewich, 2020). Amid the outbreak,
with e-commerce thriving as millions of people stay at home because of social distancing,
Amazon was indispensable in transporting the daily fundamental product to consumers all over
the world. As a result, Amazon's stock had surged by 9% despite S&P 500 suffered a plunge of
15%.

Figure 7: Amazon vs S&P 500 since Wall St' Feb.19 record high
Regarding the Covid-19 impact on Vietnam, there is a different picture in the stock market. In
March 2020, HNX-Index for stocks on Hanoi Stock Exchange, Vietnam's second main bourse
for small and midcap stocks, had decreased by 6.44 percent. In the same time frame, the VN30-
Index, which tracks the stock market's 30 largest companies, fell 6.35 percent (Hung Le & Minh
Son, 2020).
 Figure 8: VN-30 index from 2020-2021
In conclusion, there is a slight decrease in my outcomes, so I need to save and invest more in my
pre-retirement period at A2= 196,728.3 VND with WARR2 =8.1%.

References
Anh, DLT & Gan, C 2020, 'The impact of the COVID-19 lockdown on stock market
performance: evidence from Vietnam', Journal of Economic Studies, vol. ahead-of-print, no.
ahead-of-print.
Bowman, J 2020, 'Are Small-Cap Stocks Risky?', The Motley Fool, viewed 11 April 2021,
<https://www.fool.com/investing/stock-market/types-of-stocks/small-cap-stocks/are-small-cap-
stocks-risky/>.

Brian, S 2020, 'Coronavirus buoys largest US stocks as small caps suffer', s&p global, viewed 11
April 2021, <https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-
headlines/coronavirus-buoys-largest-us-stocks-as-small-caps-suffer-58879377>.

Charles, MrA & Kasilingam, DrR 2013, 'Does the Investor's age Influence Their Investment
Behaviour?', Paradigm, vol. 17, no. 1–2, pp. 11–24.

Daisy, N 2020, 'VN-Index drops again due to Covid-19', Vietnam Insider, viewed 11 April 2021,
<https://vietnaminsider.vn/vn-index-drops-again-due-to-covid-19/>.
Dat, N 2020, 'Most employees ready to quit if salary cuts endure,' vnexpress, viewed 10 April
2021, <https://e.vnexpress.net/news/business/data-speaks/most-employees-ready-to-quit-if-
salary-cuts-endure-4099396.html>.

Gresham, T 2019, 'What Is the Difference Between Large Cap & Small Cap Stocks?', Finance -
Zacks, viewed 11 April 2021, <https://finance.zacks.com/difference-between-large-cap-small-
cap-stocks-4117.html>.
Hung Le & Minh Son 2020, 'Covid-19 sends VN-Index plunging to biggest losing session in 19
years - VnExpress International', vnexpress, viewed 10 April 2021,
<https://e.vnexpress.net/news/business/economy/covid-19-sends-vn-index-plunging-to-biggest-
losing-session-in-19-years-4066644.html>.

Jackson, A-L 2020, 'Investing Basics: Large-Cap Stocks', Forbes Advisor, viewed 11 April 2021,
<https://www.forbes.com/advisor/investing/large-cap-stocks/>.

Jain, P n.d, 'Benefits and Risk of Global Investing | Advantages of Global Investment', Winvesta,
viewed 11 April 2021, <https://www.winvesta.in/blog/benefits-and-risk-of-global-investing/>.

Korniotis, GM & Kumar, A 2013, 'Do Portfolio Distortions Reflect Superior Information or
Psychological Biases?', Journal of Financial and Quantitative Analysis, vol. 48, no. 1, pp. 1–45.

Lee, YN 2020, '5 charts show what the global economy looks like heading into 2021', CNBC,
viewed 10 April 2021, <https://www.cnbc.com/2020/12/28/5-charts-show-covid-impact-on-the-
global-economy-in-2020.html>.

Liz Capo, M, Craig, T, Mathieu, B & Demetrios, P 2021, 'The Covid-19 Pandemic Has Added
$19.5 Trillion to Global Debt', bloomberg, viewed 10 April 2021,
<https://www.bloomberg.com/tosv2.html?vid=&uuid=f13a2b70-9a29-11eb-bfb5-
6d48e379dd4d&url=L2dyYXBoaWNzLzIwMjEtY29yb25hdmlydXMtZ2xvYmFsLWRlYnQv>.

Naveen, D & Anders, G 2020, 'Effects of COVID-19 on business and research', Journal of
Business Research, vol. 117, pp. 284–289.

Quy, N 2020, 'Covid-19 crisis hurts 31.8 million Vietnamese workers', vnexpress, viewed 10
April 2021, <https://e.vnexpress.net/news/news/covid-19-crisis-hurts-31-8-million-vietnamese-
workers-4172505.html>.

Randewich, N 2020, 'Amazon is Wall Street's biggest winner from coronavirus,' Reuters, 29
April, viewed 10 April 2021, <https://www.reuters.com/article/us-amazon-stocks-
idUSKBN22B2ZU>.

TradingView 2020, 'VN30 Index Charts and Quotes', TradingView, viewed 10 April 2021,
<https://www.tradingview.com/symbols/HOSE-VN30/>.

United Nation 2021, 'World Economic Situation And Prospects: February 2021 Briefing, No.
146', United Nation, viewed 10 April 2021,
<https://www.un.org/development/desa/dpad/publication/world-economic-situation-and-
prospects-february-2021-briefing-no-146/>.

Appendix
Assuming the change in my rate of return on asset classes is equal to the change in Question 6

 International stock (Amazon increased by 9%)

The rate of return regarded to international stocks will increase from 8.91% to 9.71%.
  Large-cap stock (VN-30 index decreased by 6.35%)
The rate of return regarded to large-cap equities will decrease from 9.18% to 8.59%.

 Small-cap stock (HNX decreased by 6.44%)

The rate of return regarded to small-cap equities will decrease from 11.07% to 10.35%.

 WARR2 =45% x 8.59% + 15% x 10.35% + 20% x 9.71% + 15% x 4.86% + 5% x 0%

= 0.081 or 8.1%

 A2= 196,728.3 VND