Title: Can the Smiths Achieve Their $2 Million Retirement Goal? A CAPM Analysis of Thei... Tagline: Can the Smiths Achieve Their $2 Million Retirement Goal? A CAPM Analysis of Their High-Growth Tech Stock Problem: John and Mary Smith, both 42 and earning a combined $450,000, have a $300,000 retirement portfolio primarily invested in high-growth tech stocks. With three children aged 10, 8, and 6, they're concerned about funding both their retirement goal of $2 million and future college expenses. They believe their current strategy, heavily weighted in a single tech company stock (Beta of 1.8), will achieve the necessary growth. However, they haven’t rigorously assessed the risk-adjusted expected return and are worried about potential downside. The current risk-free rate is 3.5% and the market risk premium is estimated at 7%. Solution: By using the CAPM Calculator, the Smiths can determine the expected return of their tech stock given its beta, the risk-free rate, and the market risk premium. This allows them to compare the expected return to their required rate of return, informing a decision to adjust their portfolio allocation. The Tax Equivalent Yield calculator helps them evaluate alternative, lower-risk investments with tax advantages. The Bond YTM calculator can assess the potential returns of adding bonds to reduce portfolio volatility. ROI: If the CAPM calculation reveals that their current strategy is likely to significantly outperform or underperform their required rate of return to meet their $2 million goal, they can reallocate. Assuming their initial expected return was 16.1% based on the CAPM calculation, and after reassessment they realize a more reasonable target is 12%, and by reallocating 30% of their portfolio to tax-advantaged municipal bonds yielding a tax-equivalent yield of 5% the Smiths can reduce portfolio volatility while still achieving an expected return of around 13.7%. This results in a potential annual reduction in portfolio volatility by 20%, increasing the probability of achieving their retirement goal, and potentially saving them hundreds of thousands in lost opportunity costs and potential market downturn losses. Let's say that downturn prevents a loss of $200,000. Description: Determine if the Smith's aggressive tech stock strategy can deliver the returns needed to fund their retirement and three children's college education. This calculator will provide clarity on risk-adjusted returns and alternative investment options. Category: Lead Gen