Mutual Funds

Applied Analysis – Mutual Funds and Portfolio Building

Mr. and Mrs. Grubman have $10,000 in cash they received for their wedding. They would like to invest this amount long-term for their eventual retirement in 30 years. After an in-depth analysis of their situation, you determine that 10% should be placed in a money-market/short-term bond fund for emergencies, 50% should be place in a diversified stock fund, 20% in a intermediate/long-term bond fund, 10% in an international stock fund, and 10% in a REIT fund.

1. If your last name starts A-M, you've decided to use just Fidelity funds. Go to the Fidelity site http://www.fidelity.com/. If your last name starts with N-Z, you’ve decided to use just Vanguard funds, http://www.vanguard.com/ . Find five funds that meet the conditions in the intro. Give me the names of the funds you choose and their expense ratios. Ignore minimum amounts needed for purchases although this would be an issue in reality.

2. Examine the ten year historical returns for the five funds you chose in task one. (Use five or three year historical returns if ten year returns are not available.) To find historical return results, simply click on the fund you chose from your screening list. Assuming historical returns are at least a proxy for expected returns, determine the weighted average expected return for this portfolio. If your historical returns are negative, approximate what you would expect to make from each fund rather than use negative numbers since no one expects to lose money. If your fund's return is extremely high, reduce the amount to what you think is more likely to occur in the future. Remember, we only look at historical results to give us an idea of what to expect in the future. It should be used as a guide only. To calculate your weighted average return, use the following formula: Weighted average expected return = .1(expected money market fund return) + .5(expected stock fund return) + .2(expected intermediate...