This is what I have so far but i need help with choosing the 5 mutual funds Can anyone help me out?
Some disadvantages of Cliff’s current investment approach are that he has not kept track of his investments. Having made the investments Cliff should have kept track of them. He should hold on to the investments that are doing well and sell the ones that are not. Investing without any specific targets or goals, doesn’t help when he is trying to accumulate funds for retirement.
Different investments have different risk and should be kept in mind while investing. He has no dollar amount as a target, while investing it is important to have the dollar amount that he wishes to acquire. Based on these and the expected returns, a monthly allotment can be made. Without the target, it is difficult to put aside any amount of money. His portfolio should if possible be a diversified portfolio so that the instability in returns is reduced. This means that he should include some low risk securities such as Treasury Bills.
Advantages of Mutual Funds: Professional Management – The primary advantage of mutual funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
Diversification – By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you. Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn’t be possible for an investor to build this kind of a portfolio with a small amount of money.
Economies of Scale – Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay. Liquidity – Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time. Simplicity – Buying a mutual fund is easy.
Cliff can invest the ,000 as follows:
Asset HoldingsAmountProportion
Growth stocks,00030%
International stocks,00020%
High quality bonds,50025%
Zero coupon bonds,50015%
3 to 5-year CDs$ 9,00010%
Total,000100%
Rebalancing the portfolio means moving from risky assets to safer assets as you time passes. The logic behind that is that an investor would not like to lose capital as he grows older, since the sources of income would be limited. As people approach retirement, they tend to become more risk averse. Their investment strategy also tends to emphasize capital preservation. This increased conservatism is a very normal response. However, this shift in risk tolerance requires tha
El Guapo 1:05 am on May 12, 2010
Don’t forget to set aside $20K (or an amt that will grow to $20K) for Cliff’s wedding in 3 years – that’s short-term money, and should be kept in "safe" investments. Also (I don’t know if your prof cares about this), Cliff should have an emergency fund equivalent to 6 months’ living expenses – this should also be kept in safe investments.
For retirement, I would allocate as follows:
VFINX – 30%
FDIVX – 20%
FSLCX – 15%
FSICX – 20%
TRREX – 15%
I hope that helps. Good luck!
Josh 1:05 am on May 12, 2010
VPCCX
DODWX
FAIRX
PTTRX
NEWFX
Uncle D 1:05 am on May 12, 2010
Sounds like Cliff needs help selecting mutual funds.