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Exercise 4A: Selecting a target retirement fundJason Jones, age 25, just graduated from University last year with a degree in integrated physiology. He had just been hired by a local sports/gym facility as a trainer, specializing in sports injury rehabilitation. The job was full time and offered a splendid array of benefits!It was all very exciting, but also quite bewildering. He had to make a number of benefits choices and was not quite sure how to proceed. He had already picked out the medical and disability plans. Now he was working on what to do about his retirement options. The company offered a Roth 401k where they matched 50 percent of the employee contribution, up to 6% of gross salary. Contributions were not tax deductible. However, all distributions at retirement were tax free.Jason was hired at $37,500; if he invested 6% of his pay ($2,250), the company would contribute $1,125 for a total invested of $3,375. Jason knew that saving 10-15% was recommended, but he knew his budget would be very tight at first. He resolved to contribute the 6% now to get the maximum match, but planning to increase savings in the future, when his salary increased.The company offered target retirement funds from both Vanguard and Fidelity (see Exhibit 1). These funds were highly diversified, low cost mutual funds that adjusted their asset allocation to a more conservative mix as the employee aged and approached retirement age. Jason knew the simple approach was to simply pick the fund that most closely matched his planned year of retirement, which was 2055.However, he wanted to look a little more closely at what his personal asset allocation should be, given both his retirement plans and risk aversion profile. First, he would take a risk assessment to see what the recommended asset allocation for him would be. Second, he would pick the target fund that seemed to make the most sense for him, based on the tool’s results and information about the fund.Jason was excited to start the new job and was thrilled to be actually selecting his retirement plan as well!Exhibit 1: Available Target Funds Exhibit 2: On-line Asset Allocation ToolCNN Money Tool—2 minute tool Calculators Tool—5 minute tool 3: On-line Research ToolsFinance Yahoo Research Site Research Site: the exercise narrative.Select one on-line asset allocation tool and determine the appropriate asset allocation. Use your personal discretion when answering risk questions as well as exact retirement date. Select Vanguard or Fidelity and do research on the best target fund, based on the narrative, the asset allocation obtained, and your plete the questions below.Case 4A: Selecting a target retirement fundGroup Number or Names: ________________________________________ What were your asset allocation results? Complete below. Which retirement fund did you choose and why?What is the asset allocation of your chosen fund? Complete below. ................
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