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Personal Finance Concepts

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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.

  • Personal Finance Concepts -

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  • Personal Finance Concepts -

    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.

  • Personal Finance Concepts -

    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.

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