Personal Finance - Cliff Swatner problem

Personal Finance - Cliff Swatner problem - Cliff Swatner is...

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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. 1. Not keeping track of investments - Having made the investments Cliff should have kept a track of them. He should hold on to the investments that are doing well and sell the ones that are not. 2. Investing without any specific targets or thoughts - each investment made should be linked to the purpose and the time of investment. Different investments have different risk and return characteristics and these should be kept in mind while investing 3.No Dollar amount as target - while investing, it is essential to have the final value that one wishes to get. Based on these and the expected returns, a monthly allocation can be made. Without the target, it is difficult to put aside any amount of money. 4. Diversification - The money has been put in bonds and stocks. The portfolio should ideally be a diversified portfolio so that the volatility in returns is reduced. This means that he should include some low risk securities such as Treasury Bills 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
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This note was uploaded on 08/29/2010 for the course ENGINEERIN 305 taught by Professor Martincandell during the Spring '10 term at Rio Hondo College.

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Personal Finance - Cliff Swatner problem - Cliff Swatner is...

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