Alice Cartwright is now 45 years old. Over the past several years, she has been struggling to fund her nest egg for retirement. Every time she thought about how much money she needed to retire on, she became frustrated and lost confidence. This past September, she inherited $500,000 from her favorite aunt who recently passed away. She wants to retire as soon as her portfolio reaches $1,000,000. She would like to achieve this goal within the next 5 years.
You and your team need to construct a portfolio for Alice. The portfolio should consist of at least 15 different investments; it should demonstrate to her how to invest the money for the long term. When constructing the portfolio, risk and principle protection are paramount. The client is risk adverse and does not want to lose principle. You need to project savings. Ultimately, she would like to generate about 40k in after-tax income from the portfolio as retirement income. The current CD rates will not generate the required cash return that Alice wants because they are only 1%. The expected return in the market has an anemic return of just 3%, because the United States we are just coming off a long bull market run and is entering a period of a bear market, which is expected to last 3 years. Alice wants her stocks to have low PEs and low betas.
A) – Select stocks, bonds, mutual funds, ETFs, and so on that you feel are right for Alice. Determine the appropriate mix of investments. Give an explanation as to why you think the investments will meet the needs of the client along with your projections of how these investments will meet the cash demands of the future.
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