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Download Example File for Version 10 (*.rsgz10) or Version 9 (*.rsr9)
In planning for your retirement, you normally invest a percentage of your income in “safe investments” (Bank) or in “riskier investments” (Stock Market). For this example, assume that you are choosing to invest some of your money in the bank and some in the stock market, and let’s say that NASDAQ is tied to the NASDAQ Composite Index.
First, you do your research on the two investment vehicles and determine the following:
Note that you can use the Weibull++ software to analyze data on average bank interest rates and NASDAQ annual returns to obtain the distribution and parameters for this analysis, as illustrated in the linked figures.
You will invest X% of your income per year for the next Y years. Assume that your current income is $40,000 per year and, based on past history, your income will increase yearly by a percentage that is normally distributed with mean = 4 and standard deviation = 1.5.
You will put Z% of your investment money in the bank for the first year and the remainder in NASDAQ. Given the volatility of NASDAQ, the following strategy is applied for subsequent years:
Define models to describe the stock profit, bank interest and the yearly increase in your income, as shown next.
Note that even though the investments are measured in money, the Model Unit has been set to Hours. This is because RENO flowchart results are always given in terms of the system base unit (SBU), and resources that require you to define a unit (i.e., Synthesis models) will have their values automatically converted to base units during simulation. Therefore, whenever you don’t want RENO to convert the value obtained from a model resource, simply make sure the model uses a unit that is defined as equal to 1 SBU. See the application help file for more information.
For this example, whenever one of the models returns a value as “X hours,” it should be read as “X dollars.” If the model unit you are using is not equal to 1 SBU (choose File > Manage Repository > Manage Units to confirm), you will need to change the model units before resimulating the flowchart.
Define the following variables:
Define RENO static functions to calculate the following:
Estimate your investment income over the next 20 years if you invest 5% of your yearly income with 50% going to savings.
First, make sure that the initial value of the InvestmentPercent variable is 5 and the initial value of the StockPercent variable is 50.
On the General Settings page of the RENO Simulation window, specify 100 simulations and a seed of 1 for repeatability, as shown next.
Construct the flowchart shown below.
In order to keep track of how the investment incomes accumulate over the years, this flowchart is looped through. The loop is created by using the following blocks:
If the condition is not met (the number of years is up), then the value of the investments are calculated and then stored in the result storage block called “Total.”
Compare your investment income after 20 years, varying the investment portion from 0% to 20% of your yearly income.
To vary the investment portion, configure the Sensitivity Analysis page as follows and repeat the simulation.
Compare your investment income after 20 years, varying the investment portion from 0% to 20% of your yearly income and varying the amount invested in savings from 0% to 100%.
To vary both the investment portion and the savings portion, configure the Sensitivity Analysis page as follows and repeat the simulation.
