Personal Finance

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.

1. Explain some disadvantages of Cliff's current investment approach.

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.

3. Explain how Cliff should periodically rebalance his portfolio, indicating how frequently rebalancing should be done.

SHOW ALL WORK FOR EACH ASSIGNMENT AND EXPLAIN EACH STEP CAREFULLY.

Investors refer to Cliffs approach to investing as an “adhoc approach”. There are quite a few disadvantages to this type of approach including; him not being capable of meeting his financial objectives, Cliffs portfolio may be high risk due to inconsistency, and Cliff may simply not have the knowledge of what he is getting himself into.

“Cliff feels that he has a moderate risk-tolerance level. Cliff is young unmarried. Therefore he has considerable investment needs....