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

[LALASD4]

This is just me I think that any money that you will be using short term should be in a money market fund. By investing somewhere else one runs the risk of it decreasing in value and all funds can decrease in value except a money market fund. And I think bond funds are not a good bet now since interest rates are at an all time low.

 

[I have WHAT in my yard?]

From the motley fool: How to pick five or six mutual funds to diversify.

KISS: Keep it simple, sweetie
Investing, like so many other things in life, often works best when we remember to simplify. The truth is, most investors would be better served with a bare-bones fund structure. How bare? To start, pick one large-value fund and one large-growth fund. This will give you exposure to growth stocks like Celgene (Nasdaq: CELG) and Google (Nasdaq: GOOG), and also to more value-oriented stocks such as Chevron (NYSE: CVX) and Wells Fargo (NYSE: WFC). Probably the only place you will need two funds for the same market cap mandate will be in the large-cap space, considering this is where you will likely allocate the biggest share of your investment dollars.

Next, pick either a fund that focuses on small- and mid-cap stocks (it can be growth, value, or blend), or two funds: one mid-cap, and one small-cap, in contrasting styles (small growth and mid value). Don't forget about international stocks -- pick one decent foreign fund that invests primarily in developed countries, but with a dash of emerging markets thrown in for flavor. Try to aim for a fund that is a blend, or choose the style that is complementary to your small- and mid-cap holding. Throw in a diversified bond fund if it is appropriate for you to have an allocation to fixed income securities, and you are all set.

Huh? That's it? Five to six funds? Yep, it's that simple. No real estate funds, no gold funds, no China funds, no sector funds. In the vast majority of cases, there are no solid reasons why investors need additional exposure to these types of investments. More often than not, it is simple performance-chasing that drives folks into funds like these in the first place. All you need to form the core of your investment portfolio is a half dozen good mutual funds. Diversification is the name of the game, and anything more than that is just distracting you. So, now that you know the secret to building a Foolish mutual fund portfolio, go ahead and get started on that ship-in-a-bottle hobby. And when you figure out how they actually get those ships inside the bottle, let me know.

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Fool contributor Amanda Kish lives in Rochester, N.Y., and does not own shares of any of the companies mentioned herein. The Fool has a disclosure policy.​

 

[booker81]

I have WHAT in my yard? :

From the motley fool: How to pick five or six mutual funds to diversify.

TMF rocks - chicken_china_mom, I'd check out stuff there for ideas - they are personal opinions, but may serve better, much better than investopedia.

http://www.fool.com/

You can search for articles and advise as well - type your keyword in the "Keyword or Ticker" box on the top left.

 

[I have WHAT in my yard?]

Quote:
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!

 

[LALASD4]

I have WHAT in my yard? :

Quote:
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.

 

[chicken_china_mom]

Quote:
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 doesn’t 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 he’ll 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 can’t generate enough money with the bonds, Cliff loses money. It’s a gamble, especially with his poor research of which ones to invest in. Just because they sound good on paper doesn’t 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. Cliff’s 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 it’s 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 Cliff’s 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.

 

[LALASD4]

Well, I cannot tell you what to put on your homework because I don't know your teacher.

I would like to point out that the investment goal is growth, he does not need any income from his investments.

I am not a big fan of mutual funds so I am not really a good person to give any advise on mutual funds but most fund don't beat the S&P indexes so I guess you cannot go wrong if you just went with the S&P if you want to go conservative.

 

[FarmerJamie]

CCM, sorry I had to bail for a few hours, looks like a bunch of people smarter than me jumped in.

I don't know the instructor, but assignments like this typically don't have a "right" answer. The assignment is to demostrate you understand the concepts of liquidity, risk, rate of return, short term vs long term investing, etc. Pick a solution and then do your best to justify it. If there was a "right" answer, someone would have written a computer program and make all of the trade advisors go the way of the buggy whip maker.

Keep your final answere simple and explain the heck out of it and you should be fine. Make sure the math is right, too...

 

[I have WHAT in my yard?]

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 he’ll 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 can’t generate enough money with the bonds, Cliff loses money. It’s a gamble, especially with his poor research of which ones to invest in. Just because they sound good on paper doesn’t mean that they actually are good. He should have researched each one very carefully before investing anything.

This is the only part I have issue with. This makes it sound as if you think bonds are as risky as stock when they really aren't. Try looking for a definition of bonds from a better site. If you are concerned he can always be looking at government bonds. (IRL a bad bet now, but this is a class.) It is fairly rare to lose on bonds, that is why people don't go solely with bonds; you get safety in return for a fairly low return. And investors don't need to wait for the bond to mature; in many cases they can sell the bond to some one else. If the bonds are part of a larger fund the investor can remove his money while the fund retains the bond. Since your hypothetical dude is young he doesn't need to go big into bonds.




Again, remember this is investing basics, not current market analysis. Whole different ball of wax right now with bonds in a overbought bubble since people were seeking their safety. I still have one bundle of bonds that are going on the market this week coming. Ask me in 6 months if I timed it right!

 

[I have WHAT in my yard?]

This link

https://personal.vanguard.com/us/insights/article/bond-webcast-QA

Is a much better definition of bonds! And it is pretty straightforward writing. Use language like this.

Do me a big fav though and don't cut and paste. That's plagiarism and it is one of my major pet peeves.



YOu got the basics of the assignment down it sounds like. I am off to put my kids to bed so this is it for me. Let me know how it goes!