Cliff Swatner is single, 33, and owns a condominium in New York City worth $250,000. Cliff is an attorney and doing well financially. His income last year exceeded $90,000, and he has sufficient liquid assets to supplement his condominium and other tangible assets. Several years ago, Cliff began investing in stocks and bonds. He made his selections on the basis of articles he read describing good investment opportunities. Some have worked well for Cliff, but others have not. Cliff has never taken the time to evaluate his portfolio performance, but he feels it isn't very good. Cliff currently has about $90,000 invested. He has been dating a woman lately and hopes to marry her in three years, at which time he will need $20,000 for marriage expenses and a honeymoon. Cliff's only other objective is to accumulate funds for retirement, but he does not have a specific dollar target for this goal. Cliff feels that he has a moderate risk-tolerance level.
Do you have a question?
He should keep the $250,000 condo if it is in Manhattan, whatever else he does. Ask the lady friend to forego the fancy wedding and share the wedding and honeymoon cost, if she wants to get married, or look elsewhere. Seek out an investment consulation with Schwab or Fidelity. Cliff should consider a prenup agreement if he is serious about getting married. That should be easy, since he is a lawyer.
For retirement in 25-30 years, he would need about $10 million dollars, assuming 8% average investment total return and 3% average inflation.
1. Explain some disadvantages of Cliff's current investment approach.
At first one of the important disadvantages in Cliff’s current investment approach is that
He has never taken the time to evaluate his portfolio performance. It has got serious
Consequences and when he started investing in stocks and bonds he made his
Selections on the basis of articles that he read and that is a highly risk decision for any
Investor to take .basically there is a possibility that he can lose all of his investments in
A very short period of Time, it is such an unprofessional step that can be taken in the
Mutual funds, stocks and bonds investing, plus He may not achieve his financial
Objectives at all. The amount of profits will depend on His financial situation and the market
And the amount of his investment will depend on risk profile, Time horizon and Savings,
So he needs to evaluate his portfolio continuously.
As an investor he needs to have an active portfolio analysis and management. Portfolio
Analyses takes the ingredients of risk and return for individual securities and considers
The blending effect of combining securities, which at least will help him to prevent a lot
Of money losing and the Portfolio management will help him in the dynamic function of
Evaluating and revising in terms of stated objectives. That’s why a portfolio rebalancing
Is very important to ensure that the strategy stays consistent and current with changes
In the needs of the financial situation and market conditions that can change at any
Time, there is different types of financial form that he can use like investing in shares of
Companies equities and in this type he can chose between dividend or growth
Investment, and there is bonds, CD accounts ,Cash Equivalents and Mutual funds.
2. Construct a portfolio for Cliff, limiting your selections to mutual funds (assume that he
Sells his current stock and bond holdings). Make sure your plan indicates specific dollar
Amounts for each portfolio component. Make sure your plan also explains your
Selections for each portfolio component.
I think it’s a good start that he already started investing, His main focus needs to be the
Protection of his earning against disability resulting from injury or sickness. He needs to
Be married in 3 years, His wish is also to take a long term saving plan for retirement.
His portfolio will be of Moderate risk portfolio so here are some steps for him to take:
Equity Funds which is 40% of the 90.000 = $36,000.
Government Bond Funds which is 30% of the 90.000=$27000.
Growth & Income Funds, that is 20%of the 90.000= $18000.
Index Funds that is 10% of the 90.000= $9000.
That will result to the Total $90000.
3. Explain how Cliff should periodically rebalance his portfolio, indicating how frequently
Rebalancing should be done.
Cliff needs to focus on his investments carefully and determine those that have had
Losses then he need to sell them. Cliff can recognize a tax deduction for those losses
Up to few thousands per year with the remainder carrying over to the following year and
That will at least get him some of his money back plus he needs to keep his eyes
Opened for new companies that can make him some money and what I mean is he
Needs to keep looking for better deals and higher rates.
Also he needs to invest in the 401k as much as possible, and if at any point he if
Achieved His goals in one investment he needs to set new goals and that will pay off
at the End. He needs to keep up with three main factors; first he needs keep the record
of the total cost of each security at that time, as well as the total cost of his portfolio and
That least give him the time to take any action if it is needed then he have to Compare
On a chosen future date, review the current value of his portfolio and of each asset
Class and calculate the weightings of each fund in his portfolio by dividing the current
Value of each asset class by the total current portfolio value that will give him more
Choices and option and at last he needs to adjust If he finds that changes in his asset
Class weightings have distorted the portfolio's exposure to risk, he should take the
Current total value of the portfolio and multiply it by each of the percentage, weightings
Originally assigned to each asset class.
Based on the information provided, Cliff Swatner is a single 33-year-old attorney who is financially stable. He owns a condominium worth $250,000 and had an income of over $90,000 last year. Cliff has also been investing in stocks and bonds, although he has not evaluated his portfolio's performance and believes it isn't doing well. He currently has $90,000 invested and has a moderate risk-tolerance level.
To help Cliff with his investments and financial goals, here are a few steps he can take:
1. Evaluate his current portfolio: Cliff should take the time to assess his investment holdings, including stocks and bonds, and determine their performance. This involves looking at returns, comparing them against market benchmarks, and assessing the overall diversification of his portfolio.
2. Set specific investment goals: Given Cliff's objective to accumulate funds for retirement, he should define a specific dollar target or estimate the income he would like to have during his retirement years. This will help him plan his investment strategy and determine how much he needs to save and invest.
3. Determine risk tolerance: While Cliff mentions having a moderate risk tolerance level, he should assess it more objectively using risk-assessment questionnaires or consulting with a financial advisor. This will help him understand how comfortable he is with different levels of risk in his investments.
4. Rebalance and diversify the portfolio: Based on the evaluation of his current holdings, Cliff should consider rebalancing and diversifying his portfolio. This means adjusting the allocation of his investments to achieve a mix of asset classes (e.g., stocks, bonds, real estate) that align with his risk tolerance and investment objectives.
5. Consider seeking professional advice: Given Cliff's lack of experience in evaluating his portfolio performance, it could be helpful for him to consult with a financial advisor. An advisor can provide guidance on investment strategies, asset allocation, and help him develop a personalized investment plan.
6. Regularly review and monitor investments: Once Cliff has made changes to his portfolio and investment strategy, it is important for him to regularly review and monitor his investments. This includes tracking performance, staying informed about market trends and economic conditions, and making adjustments as necessary.
By following these steps, Cliff can take control of his investment portfolio, improve his overall performance, and work towards his financial goals of marriage expenses, a honeymoon, and accumulating funds for retirement.