Sign In
Not register? Register Now!
Essay Available:
Pages:
4 pages/≈1100 words
Sources:
3 Sources
Style:
APA
Subject:
Accounting, Finance, SPSS
Type:
Essay
Language:
English (U.S.)
Document:
MS Word
Date:
Total cost:
$ 18.72
Topic:

Analysis of the Clients in Terms of their Portfolio

Essay Instructions:

See attached documents for the Rubric, Spreadsheet, Scenarios, and Milestone 1 for information. Please let me know if you have any questions.

You will use these scenarios and tables to complete the final project.

Client 1:

Ezra, age 26, is single. However, he is dating and preparing to get engaged. He will need roughly $5,000 for an engagement ring almost immediately, and expects he will need $10,000–$15,000 for the wedding in the next 12–24 months. He is currently employed and earns about $70,000 a year in salary. This salary is enough to cover all his taxes and normal living expenses of approximately $4,800. This leaves him with about $1,000 in savings each month ($350 to 401K, $650 to savings). He has been able to save roughly $15,000 to date in a 401K plan from work and about $20,000 in cash savings. His 401K plan has been invested 100% in the stock market, including some sector-specific funds. His other savings have been in interest-bearing savings and cash substitutes such as money market funds. He recently received a windfall of $60,000, and this prompted him to come to you for some advice. The following are few of Ezra’s comments to help guide your thoughts: 1. “I understand I am young, so I need to take on as much risk as I can.” 2. “I am willing to lose 30–40% on my invested capital if the return is commensurate.” 3. “I do like to have a decent sized cushion in the bank in case something happens at my job.” 4. “I don’t foresee my risk tolerance changing after I get married.” 5. “Do you have any good stock tips?”

Client 2:

Jacob and Rachel, 53 and 52 respectively, are married with four children. Two of the children are currently in college, and two are in high school. They expect the other two children to attend college. The couple has done relatively well for themselves and earn roughly $275,000 before tax between the two of them, which equates to $190,000 after taxes. They live well below their means, and this should allow them to cover all of their children’s college expenses out of pocket, but it will not leave much for them to save over the next six to eight years. Through savings and portfolio growth, they have managed to accumulate $900,000. To this point, they have been moderately aggressive (70–75% equities) with their portfolio, but they feel that they need to begin preparing the portfolio for partial retirement in eight years, and full retirement in 13 years. 1. “I know we still need to be somewhat aggressive—we could live until we’re 90—so we need to plan for some growth even in retirement.” 2. “We definitely can’t afford to take a big hit in our portfolio. We don’t have enough time to recover.” 3. “Our jobs allow us to work part-time in retirement, and we will probably do so as long as we are able.” 4. “What do bond yields look like today?” 5. “I think we’ll need to draw on 3–5% of our portfolio in retirement. We’d like to earn enough income from the portfolio to cover that.”

Essay Sample Content Preview:

Analysis of the Clients in terms of their Portfolio
Name
Professor
Institutional affiliation
Date
Analysis of the Clients in terms of their Portfolio
The type of investment that one gets involved in is partly determined by the investor’s ability to accept or can handle in case there is a decline in the value of investment. A key question that one needs to have at the back of the mind is to what extent they will be comfortable if a stock market for example experiences huge loss (McBride, 2021). It is referred to as risk tolerance that plays a major role in the investment game plan of a person. It may be determined by the individual’s age, other investments, employment status, total income and the individual’s financial goals. The risk tolerance is determined by two factors including the ability to take the risk as influenced by wealth, and time horizons among others. The willingness to take risk is more subjective factor. A person who has been sacked from employment and does not have income anymore may be less willing to take a risk. It may be categorized as being high, moderate and low risk tolerance (McBride, 2021).
The risk may be expressed quantitatively in regard to the extent to which the portfolio should make a loss which may be absolute or relative. A 90% portfolio, for example should not experience a loss of more than 10% within a specified period of time, say 12 months (Palmer, 2021). This is absolute relative objective that is not determined based on market forces but by the standard deviation and the value of the investment at risk. Relative objective risk on the other hand is expressed based on a set value or a bench mark or a certain range of values. For example, the return objective risk may be set to be within 6% of the total investment (Palmer, 2021).
The cases presented here ought to be determined using the client’s ability to take risk depending on their age, employment status and various factors of their dependents. Ezra is relatively young, employed, about to be married and does not have children. He has little expenditure on daily expenses and no expenditure on school. These are some of the factors that indicate his ability to take risk. He feels that he can comfortably handle a loss of 30-40% of his investment if the return is commensurate. Marriage that he is planning to enter into does not affect his risk tolerance because it will have insignificant effect on his capital, investment and income. Combination of these factors indicates that Ezra has a high risk tolerance and that he has above average risk tolerance ability.
It is important to understand the meaning of the term liquidity which is the ease at which assets or the security that one has kept can be converted in to ready cash. Stocks and bonds for example can be sold easily within a few days into cash and are said to be very liquid. This is contrary to property such as real estate and motor vehicle which may take a longer period of time to be sold into money and are said to be less liquid (Mueller, 2019). Ezra’s investments are highly liquid because the investment in stock market makes it easy to convert them into cash within a few days. The other saving is in the interest making savings such as m...
Updated on
Get the Whole Paper!
Not exactly what you need?
Do you need a custom essay? Order right now:
Order

👀 Other Visitors are Viewing These APA Essay Samples: