Financial question

Homework #1

Investment Personality Type Matrix + Susanne Case

	Make Decision Based on Thinking	Make Decision Based on Feeling
Most Risk Averse	Methodical Investors · Decision based on objective FACTS · Research market and stock for potential investment; work hard; disciplined; · Conservative nature of their investment · Advising is not easy as they are confident with their methodical investment	Cautious Investors · High need for financial security; strong desire to avoid loss · Over-analyze (miss) investment opportunity · Do not like to make their own decision · Once decisions are made, portfolio exhibits low turnover/low volatility
Least Risk Averse	Individualist Investors · Do homework and self-confident (overconfident) that they will succeed in the long run · Question analyst recommendations · Like to make independent decisions · Consider themselves investment expert	Spontaneous Investors · Like HOT investment; make quick decisions in the heat of the moment · PF has high turnover and frequent tradings · Risk takes a back seat in their investment · Do not consider themselves as expert; but do not trust professionals, either.

Suzanne, age 60, recently retired from her position as an international fashion designer. She has accumulated $3 million for retirement. She supports her son, Barry, age 40, his wife, and three children (age 14, 12, and 10). Neither Barry nor his wife work outside the home.

Suzanne estimates that she will need $60,000 (in todays’ dollars) annual to live comfortably. Inflation is expected to be 3% annually, and she is in the 28% marginal tax bracket. She plans to continue supporting her son and his family on $30,000, also indexed for inflation. However, she has informed them that should she die, a gift fund will be established with the local museum and that her sons’ family will only receive $20,000 in interest from the gift account. Otherwise, the fund will be managed for the benefit of the museum. Thus, another goal is to maintain her principal in the retirement fund for her gift account with the museum.

Suzanne has a desire to travel to Europe for two months as a retirement present to herself and requires $50,000 for her travel expenses. Suzanne states that she is willing to assume some risk to obtain her objective.

· Classify Suzanne investment personality type.

· Draft the IPS (Simple) for Suzanne.

· Select and justify one of the following portfolios for Suzanne.

	Allocate A	Allocate B	Allocate C	Allocate D
Asset Class
US stocks - large cap	50%	30%	15%	10%
US stocks - small cap	10%	20%	10%
International developed market equities	5%	5%	5%
International emerging market equities	5%	5%	20%
US corporate bonds	10%	25%	10%	50%
US Treasury bonds		5%		20%
Real estate			15%
VC	20%		20%
Cash		10%	5%	20%
Total expected return	12%	9%	9.5%	5%
Current yield	2%	3%	4%	5%