Construct a portfolio for Cliff, limiting your selections to mutual funds (assume that he sells his current st

Question

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.i just need help on how to do this.

Answer 1

Choose a large family of no-load funds with a diverse selection of sector funds, so you have the flexibility of switching from one fund to another.

Put a quarter of the money into mining funds - ideally one gold&silver and another base metals. Another quarter goes to energy stocks, especially smaller exporation and production companies. Divide the third quarter between high-grade utilities and financial instituations. Leave the last quarter in money market, to invest later when you get a better feel for how these are working.

Stay away from mainstream stock funds. With inflation on the rise these will not keep up in the next 5-10 years.

Best of success.

Answer 2

Cliff puts $18,000 in Vanguard's Prime Money Market portfolio to cover the wedding and honeymoon.

The rest gets split with between Vanguards Total Stock Market Index ($60,000) and Total Bond Market Index ($22,000).

Cliuff also needs to open a Roth IRA and so does his future wife.

Answer 3

I am not a professional. if this is a real world senario, you should consult a CFP.

I am building this portfolio with the following assumptions in mind:

1. ¼ of his portfolio will be needed in a three year timeframe for his wedding. This is relatively short, therefore, the 20k needs to be invested and reinvested in CD’s. 10k in 1 year and 10k in 6 month. Low risk

2. everyone needs available cash in a liquid emergency fund. 10k goes to the following:
High interest internet bank (ING) or money market account earning equivalent – low risk

3. the market on the whole is unstable and showing weakness and will probable continue to do so for some time. I would focus on value stocks at this time, more so then growth. Also, I would not favor any sector at this time.
20k split the following ways:
value funds (10k) – large cap value – moderate risk
value fund (5k) – mid cap value - this is more aggressive
small cap index fund (5k) – small cap blend – this is more aggressive

4. inflation is picking up a little and will probably continue or interest rates will be raised to compensate. Either way, bonds will suffer and I would focus more on dividends and preferred stock, also income stocks. 20k split in the following ways:
High dividend fund(4k) – large cap blend w/high dividends – moderate risk – put this in Roth IRA
High dividend fund(5k) – mid cap blend w/high dividends – moderate risk
equity income fund(5k) – large cap blend – moderate risk
convertible securities(6k) – preferred stock and some bonds – low/moderate risk

5. finally, he needs some international exposure 20k in the following:
total int’l stock index (20k) - Europe, pacific and emerging markets

6. at 33, he will reach full retirement at age 67. If he manages to save 1 million dollars by then, he can safely assume 60k/year. But by the time he is 67, it will only have the buying power of 21k. Social Security (if it continues) will generate an inflation adjusted value of about 24k/year for his income. Therefore he will be living on 45k/year in current dollars. That is NOT enough.
He must also consider that as his salary will increase over the next 34 years, 1 million will not be nearly enough. He must be convinced that a much more aggressive savings pattern is needed, and he must take advantage of everything his company offers; 401k, espp and he must open a Roth IRA (at his income, he can do both a 401k and a Roth).
90k is a good start, but remember, 20k is set aside leaving only 70k.


summary
33% cash (large weight due to wedding plans)
7% bonds (bonds are light and should be rebalanced over next year or 2. they are also being compensated for by large cash holdings)

22% international

11% large cap value
10% large cap blend

6% mid value
6% mid blend

6% small blend