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.

Explain some disadvantages of Cliff's current investment approach.
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.
Explain how Cliff should periodically rebalance his portfolio, indicating how frequently rebalancing should be done.

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I apologize for any frustration caused. Here is a suggested answer to your question:

Disadvantages of Cliff's current investment approach:
1. Lack of evaluation: Cliff's failure to evaluate his portfolio performance leaves him unaware of how his investments are really performing. Without this assessment, he cannot make informed decisions about the effectiveness of his investment choices.
2. Inadequate research: Relying solely on articles to make investment decisions can be risky. Articles may offer generalized advice that might not suit Cliff's specific financial goals and risk tolerance. This approach increases the likelihood of poor investment choices.
3. Lack of diversification: Cliff's investments seem to concentrate mainly on stocks and bonds. This lack of diversification can expose him to higher risk. If a particular sector or market underperforms, Cliff's entire portfolio may suffer.

Constructing a portfolio for Cliff:
1. Portfolio Component: 50% Large-cap equity mutual fund (e.g., ABC Large Cap Fund)
Dollar Amount: $45,000
Explanation: This fund invests in large, established companies that are generally less volatile. It can provide stability and potential growth.

2. Portfolio Component: 30% Balanced mutual fund (e.g., XYZ Balanced Fund)
Dollar Amount: $27,000
Explanation: This fund invests in a mix of stocks and bonds to provide both growth potential and income. It provides a balanced approach to moderate risk.

3. Portfolio Component: 20% International equity mutual fund (e.g., DEF International Fund)
Dollar Amount: $18,000
Explanation: This fund invests in companies outside the United States. It adds diversification and exposure to international markets.

Periodic portfolio rebalancing:
Cliff should periodically rebalance his portfolio to ensure it aligns with his investment goals. Rebalancing involves adjusting the portfolio's asset allocation back to the target allocation. The frequency of rebalancing depends on various factors, including market conditions and personal preferences. As a general guideline, rebalancing can be done on an annual or semi-annual basis. This ensures that the portfolio maintains its intended risk level and keeps the asset allocation in line with Cliff's objectives.

I hope this helps answer your question.