Investing early and regularly is a powerful way of building wealth, and this tool shows you how. Let's start with the generic interface of the Wealth Manager.
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Step 1: Introducing the application
Figure 1 shows the interface of the Wealth Manager when it is opened for for the first time. There are 3 main parts as shown in Figure 1:
1. Simulation results showing the wealth accumulation over time
2. Input about yourself: age, simulation horizon, investments, return
and inflation
3. Events represented by icons that can be dragged and dropped
under the graph to see the impact of life events
or investments
Figure 1 : Starting with the Wealth Manager
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Step 2: Setting the age
By clicking on "Graph Time Line", your age can be set as well as the simulation horizon. For retirement, the simulation horizon is recommended to be at age 85, as it is the life expectancy. Figure 2 shows the age setting for a user who is 30.
Figure 2 : Setting the age
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Step 3: Funds available today
Once your age is set, let's key in the your assets by clicking on "Investment Today".
When launching the tool, the simulation is set at a hypothetical scenario where you have $120,000 in your portfolio yielding a return of 6% per annum. The graph shows how the money is going to grow over time until the age of 85.
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Step 4: Introducing retirement
When launching the tool, the retirement icon is set at the age of 60 as shown in Figure 3.
Figure 3: Introducing the retirement icon
By double clicking on the icon, you will open the settings pop-up window as shown in Figure 4. The settings show that the retirement age is set at 60, with a monthly allowance of $3,000. This monthly alllowance is measured in today's value. As you can see lower in the settings window, the inflation parameter can be set to take into account the inlfation that will increase the monthly allowance needed.
If you change the age in the settings window, the tool will reposition the icon at the age set in the window. Furthermore, if you drag and drop the icon at a different age, the tool will simulate the new age as the retirement age.
The settings window also shows a new annual return figure. This is to be able to simulate a new portfolio return during retirement. Usually, during retirement, investors are more risk averse and they invest in more safe financial products, which of course provide a lower return. The default setting is set to 5% p.a.
Figure 4: Retirement icon settings window
As can be seen from the tool, before retirement the funds grow, this is also known as the accumulation phase. During retirement, the funds decrease as money is withdrawn to sustain the quality of life.
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Step 5: Regular investments to meet the financial goal
When launching the tool, it automatically simulates a regular investment of $500 per month. This can be seen by clicking on the "Monthly Investment" tab as shown in Figure 5.
Because you are expected to increase your salary over time, and in turn increase the amount of savings, the default settings take into account an increase in contribution of 2% per annum. By putting this increase to 0% and clicking "OK" (or entering return), you will see that the investments turn negative at the age of 84.
Figure 5: Investing regularly
If you do not continue investing in your portfolio, you can simulate what will happen by setting the value to $0. The result is shown in Figure 6, the savings are depleted by the age of 72.
Figure 6: The financial goal is not met if you do not invest regularly
To check the value of your portfolio at any point in time, you can click on the green bars. A pop-up will show the different values such as the portfolio value, your assets (if you drag and drop a property for example), your liabilities (if you purchase a property with a mortgage) as well as the total net worth
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Simulating Your Own Financial Situation
This tool enables you to change the parameters easily, and to drag and drop the different icons representing your financial goals.