Jane Smith

JANE SMITH’S INVESTMENT DECISION (A)

Stephen Foerster

Jeff Blair, an investment advisor for National Securities Inc. had just met with a potential new client, Jane Smith. Smith had recently met with an independent, self-employed investment counselor but was questioning whether, instead, to establish a relationship with an investment advisor at a well-known and reputable firm. A friend of Smith’s, and a current client of Blair’s, had suggested that Smith contact Blair for an initial discussion and sharing of ideas. Blair’s task was to help Smith develop an investment policy statement and to provide advice regarding an initial asset allocation consistent with the investment policy statement.

Jane Smith

Jane Smith was a senior vice-president of marketing at BestVal, a Canada-wide retail chain. Last year, BestVal became a publicly traded company, with an initial listing on the Toronto Stock Exchange (TSX). Since then, the company’s stock had closely tracked the market index performance. Smith currently owned approximately $250,000 of BestVal stock and had no intention of selling her stock in the near term.

Smith was age 50, single, and in good health. She had twin boys who were in their last year of high school and were both planning to attend university out of the province. She had a salary of $200,000 per year. She had accumulated individual savings of $350,000 as well as Registered Retirement Savings Plans (RRSPs) of $400,000. Virtually all of her savings and RRSPs were invested in a variety of savings accounts, short-term certificates of deposit (CDs) and guaranteed investment certificates (GICs) with maturities less than 3 years. Smith had a defined contribution plan, whereby she contributed 5% of her salary each year, which was matched by the firm’s contribution. Over the past 25 years, her pension fund had grown and was now worth $650,000. With such a defined contribution plan, Smith was able to decide how to allocate the total contributions and could...