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You know what I don't disagree with you. But, I suspect the lesson isn't going that far into current market situations as much as learning how to diversify. I said MMF for short term too! But she's not allowed.
But, IRL I am pulling alot of my investment because I suspect another tank coming on. In accounts were I am holding individual stocks I am selling a good bit and retrenching. Downturns are time to buy!
I am also putting more in cash right now than I usually have. They used to say, "In 29 fools lost their money in "32
everybody lost their money!" People forget about 32!
Well, I guess the classroom is always different than real life. For the class room I would say $30k in MM, and $15k each in Large Cap, Mid-Cap, Small Cap, and a Foreign Fund, rebalnce every year. For real life I would say mustly MM right now if I have any money.
So I should have the guy in the assignment invest more into the 3 to 5 yr fund? Here is what I have so far, am I doing it right? This is what I have so far:
The way Cliff is handling his portfolio right now is quite foolish. If he doesnt keep a constant eye on his portfolio he could end up losing everything that he has invested, and $90,000 is no small chunk of change to risk losing. According to
www.investopedia.com a bond is a form of debt with which you are the lender instead of the borrower. Bonds are contractual loans made between investors and institutions that, in return for financing, will pay a premium for borrowing, known as a coupon. Additionally, the bond's face value is returned to the investor at maturity. The guarantee of payback and all coupon payments relies solely on the ability of the borrower to generate enough cash flow to repay bondholders. What this means for Cliff is that the only way hell generate a profit on his investments is if the borrower is able to generate enough cash flow. If the stock takes a nosedive, Cliff loses money. If the borrower cant generate enough money with the bonds, Cliff loses money. Its a gamble, especially with his poor research of which ones to invest in. Just because they sound good on paper doesnt mean that they actually are good. He should have researched each one very carefully before investing anything.
To plan a portfolio for Cliff, first we need to break down the $90,000 that he will transfer from his previous investments over to these mutual funds. In reviewing possible fund choices on Vanguard.com, I found a mutual fund called the Vanguard LifeStrategy Fund. They offer 4 different funds. One is a life fund for short term investments (3 to 5 years) with low to moderate risk, one is a conservative growth fund meant for investments lasting longer than 5 years that carries a moderate risk, one is a moderate growth fund, also intended for longer than 5 years with a moderate to high risk, and the last is a growth fund with a high risk factor. Now, Cliff wants to start a retirement fund and he wants to save $20,000 for his wedding in 3 years. What Cliff needs to do is take $18,500 out of the $90,000 and invest it in the short term Life Fund. The average annual return, as of June 30th 2010, for this fund (VASIX), at the 5 yr mark is 3.86%. After 3 years Cliff would have approximately $20,726 to cover the cost of the wedding and the honeymoon as well as other expenses that may be incurred that were not necessarily planned for such as increased rental hall fees or a larger guest list than originally budgeted for. This would leave him with $71,500 in which he could invest $17,875 in the conservative growth fund (VSCGX). At the end of five years Cliff would have $20,682. Since this fund has a moderate risk, it would be relatively safe investment in his retirement. He could then invest $35,750 in the moderate growth fund (VSMGX). At the end of five years Cliff would have $39,626. This particular fund carries a moderate to high risk but the interest rate is lower. This mutual fund is a good choice for Cliff because it not only offers growth, but it also offers income for medium to long term goals. Cliffs retirement is definitely a long term goal as he should be ready to retire in approximately 30 years. The remaining money, $17,875 should be invested in the Growth Fund which runs a high risk factor, but is essential if he wants his money to grow. But because of the high risk factor its not wise for him to invest the larger portion into this particular fund. At the end of 5 years Cliff would have $18,838.
By investing like this Cliffs money will grow faster than if he sunk all his money into a single fund. By diversifying his portfolio like this his money will work better for him and he will have a nice nest egg upon which to retire.
I didn't actually use investopedia, I just took a quote from another website. investor guide.
