HELP!!! Is there anyone that can help me with my Finance homework?

[chicken_china_mom]

Ok, what I got is that if he invests $18,500 for the wedding fund at 3.86% interest for 3 years, he will have $20,726 for the wedding. That leaves $71,500 to split, and at a 25/50/26 split, it would be $17,875/$35,750/$17,875

That's what I have so far...

 

[FarmerJamie]

I think you're on the right track.


Keep going....

 

[chicken_china_mom]

Now I have to explain why I split the money that way. I don't exactly know...

 

[I have WHAT in my yard?]

Try ditching investopedia! As a teacher those on-line generic "pedia" sites drive us nuts.

Vanguard's site is great but better still try bogleheads.com it is a BYC almost like forum of Vanguard people who do nothing but discuss investment strategy. There are stickies on there that could answer your every question.

Maybe I did not take enough time to read your investment plan, but you seem to be missing the essential idea that your portfolio should be diversified. Given his age he needs a percentage in stocks, a percentage in bonds (small for him since he is young) and his percentages in stocks broken into large cap, small cap, international and mutual funds.

Since he wants to have 20 grand available in 3 years maybe a solid 3 year CD, but if I were in his shoes I would put that in a money market fund.

Cliff needs a reputable financial advisor. He may also want to consider a life insurance annuity - long term investment buy now when it is cheaper...... Let me see if I can find a better link for you.

 

[I have WHAT in my yard?]

Model portfolio for a young investor.

This next portfolio comes from The Boglehead’s Guide To Investing by Larimore, Lindauer, and LeBoeuf. Taylor Larimore and Mel Lindauer are frequent and respected contributors at the Vanguard Diehards Forum. While obviously they are Bogle fans, they do present their own views on things. Four different model portfolios are given, but I will focus only on two of them.

Young Investor Model Portfolio


Asset Allocation for 80% Stocks/20% Bonds
55% Domestic Large Cap Stocks
25% Domestic Mid/Small Cap Stocks
20% Intermediate-Term Bonds

The domestic stock component of 70% Large and 30% Mid/Small Cap is actually how the entire U.S. stock market is broken down on a cap-weighted basis. Thus, you only need one US Total Market fund to cover both.

Investor in Early Retirement Model Portfolio
30% Diversified Domestic Stocks
10% Diversified International Stocks
30% Intermediate-Term Bonds
30% US Inflation-Protected Securities, or TIPs

The other two portfolios are for the Middle Aged Investor (30% US Large-Cap, 15% US Mid/Small-Cap, 10% International, 5% REITs, 20% Intermediate-Term Bonds, and 20% TIPs) and the Late Retirement Investor (20% Diversified Domestic, 40% Short/Intermediate-Term Bonds, 40% TIPs).

Overall, another simple but diversified portfolio – easy to build, easy to maintain. The risk profile is adjusted with age, going from more aggressive to less so with time. There is not very much international exposure.


Share|

 

[chicken_china_mom]

I have WHAT in my yard? :

Model portfolio for a young investor.

This next portfolio comes from The Boglehead’s Guide To Investing by Larimore, Lindauer, and LeBoeuf. Taylor Larimore and Mel Lindauer are frequent and respected contributors at the Vanguard Diehards Forum. While obviously they are Bogle fans, they do present their own views on things. Four different model portfolios are given, but I will focus only on two of them.

Young Investor Model Portfolio


Asset Allocation for 80% Stocks/20% Bonds
55% Domestic Large Cap Stocks
25% Domestic Mid/Small Cap Stocks
20% Intermediate-Term Bonds

The domestic stock component of 70% Large and 30% Mid/Small Cap is actually how the entire U.S. stock market is broken down on a cap-weighted basis. Thus, you only need one US Total Market fund to cover both.

Investor in Early Retirement Model Portfolio
30% Diversified Domestic Stocks
10% Diversified International Stocks
30% Intermediate-Term Bonds
30% US Inflation-Protected Securities, or TIPs

The other two portfolios are for the Middle Aged Investor (30% US Large-Cap, 15% US Mid/Small-Cap, 10% International, 5% REITs, 20% Intermediate-Term Bonds, and 20% TIPs) and the Late Retirement Investor (20% Diversified Domestic, 40% Short/Intermediate-Term Bonds, 40% TIPs).

Overall, another simple but diversified portfolio – easy to build, easy to maintain. The risk profile is adjusted with age, going from more aggressive to less so with time. There is not very much international exposure.


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I know it would be in this guy's best interest to diversify his portfolio, but according to the assignment he's suppose to sink his entire $90,000 into mutual funds, and then I was given 3 websites to review. One I didn't understand, but I did get the jist on Vanguard. I'm still not exactly understanding what it is I'm doing, but I'm trying to understand it!​

 

[I have WHAT in my yard?]

Mutual funds themselves are diversified according to these same standard set up.

Look for funds that are themselves diversified, the teacher really insisting on just mutual funds (?) may be looking to see if you understand what they are.


Edit to add a thread from bogleheads on mutual funds. http://www.bogleheads.org/forum/viewtopic.php?t=60397&sid=8cdb689dd849bc59bb825184eadc6e4a

 

[chicken_china_mom]

I have WHAT in my yard? :

Mutual funds themselves are diversified according to these same standard set up.

Look for funds that are themselves diversified, the teacher really insisting on just mutual funds (?) may be looking to see if you understand what they are.


Edit to add a thread from bogleheads on mutual funds. http://www.bogleheads.org/forum/viewtopic.php?t=60397&sid=8cdb689dd849bc59bb825184eadc6e4a

I have been looking, and I see that the way Vanguard sets them up, depending on what fund it is, like the Growth Fund which has the highest risk, it maintains a growth-oriented asset mix of between 65% stocks/35% bonds and 90% stocks/10% bonds. Which is probably why the teacher wants all $90,000 sunk into these funds, because they are already diversified enough.​

 

[booker81]

Cliff needs to immediately start looking into investing for retirement NOW. If work does not offer a 401k, he needs to start a Roth immediately. Check out some of the "Free" online calculators to see what he needs to have at retirement, and how much he needs to start investing in that.

The middle, that can get long and huge, but looks like folks are working on it.

Rebalancing is important with a split portfolio because it keep you in the same risk and type factors - ie - 25% high, 50%mid, 25% low. If the investments in the low section do well and the high doesn't, you run the risk of skewing you portfolio - say 5%/50%/45%. It may sound silly to take the money away from the funds doing well (low), but you need to keep the same factors you want for your age and income. You don't want to rebalance too frequently - most common times are monthly, quarterly, biannually, and yearly. Yearly is the most common. Every few years he should look into his risk and type factors and change the weight of his investments, slowly moving to a more conservative investment strategy than a risky one.

I need to make dinner.

ETA: Of course, the assignment is now, while I'm stuck home on disability and my Series 6 info and study material is at work (Series 6 is the test to qualify to sell mutual funds).

I'd check and see if the teacher is looking to using rebalancing as a way to correct changes in the market for funds, as a definition of changing ones portfolio to update according to ones financial conditions and goals.

 

[I have WHAT in my yard?]

Quote:
I have been looking, and I see that the way Vanguard sets them up, depending on what fund it is, like the Growth Fund which has the highest risk, it maintains a growth-oriented asset mix of between 65% stocks/35% bonds and 90% stocks/10% bonds. Which is probably why the teacher wants all $90,000 sunk into these funds, because they are already diversified enough.

They are, but it sounds like the cat before the horse. Did s/he teach you about diversification before asking you to use mutual funds to achieve it??

Because the flaw with all mutual funds is being diversified in the wrong overlapping categories. (I don't mean to make it more confusing.) Choose funds with different goals like you already found Growth (higher risk longer term view) and Income Management (shorter term lower risk) Vanguards are usually listed that way.......


I hope I am helping and not making it harder!!