Portfolio Construction Case Study
Hello fellow monkeys,
I was just introduced to a case study via the finance association at my school and we are to construct a portfolio for a married couple with these objectives and credentials.
-Husband and Wife both age 30 (don't want kids) -Each make 125,000 a year -Want 150,000 annually starting at age 60 (expected to live to 95) -After-tax return is 7% and inflation is 2.5% -They currently have 1,000,000 portfolio (and an adequate cash reserve) -Aggressive Investment philosophy (sounds like up to 10% drop in portfolio before they start feeling uncomfortable)
I am an underclassmen and this is my first time creating a portfolio. Here is what I am thinking so far:
60-65% Equities - mix between domestic-international, large-small cap diversified through each sector
15-20% Alternative - is there enough money here to get into PE, HF, IPO's? -emerging markets (China, Brazil, South Korea) -commodities (mining, energy, agricultural, oil)
10-15% Fixed Income - mix between high-low yield, short-long bonds (mostly short since rates are so low)
5-10% Cash and Cash Equivalents - ETF's (housing)
Please let me know what you think, and/or if you have other suggestions. Appreciate the input
Looks good to me. It's indeed on the aggressive side, but I think it's probably at the right level.
I wish I understood why stupid topics on this website get hundreds of comments, while threads with actual subject matter die...
Grow up. You haven't put any work in, so there's nothing to comment on. The judges will care about the PROCESS you went through, not the OUTCOME. The final allocation is meaningless.
If you want advice, the Level II CFA books have a step by step breakdown of everything you need to do to construct a portfolio. I would suggest you take a look there and get to work.
Yeah wow, sorry that came off as bitchy and whiny as it did, just stressed. I do appreciate the advice though, the CFA books are extremely helpful.
First of all, that is a dumb return target.
Who is running/judging this case study? Knowing who will be assessing your proposal will probably affect how you approach the problem. Is it contest? Also, what sort of limitations/constraints were you given?
Feel free to PM if you need help.
A decently sized investment advisory firm presented it to our finance association this week. And honestly not many, they don't plan on having kids so they will both be working till 60. Peace of mind regarding their investments is stressed, as well as the fact that the couple is unwilling to wait several years to recover from losses suffered during a recession.
They also hinted at taxes being a big part of this case. With the interest rates as low as they are, the key is investing in vehicles that pre-tax, as opposed to paying when they take it out 30 years from now right?
If they are only in the 28% tax bracket, I don't think that taxes are the primary concern. Like anybody else, they should keep any taxable bonds/bond funds in the deferred accounts and keep the tax-exempt bonds and equity ETFs outside, then split the remainder of the accounts among individual stocks and active equity funds based on their allocation.
Anyway, if they were asking me for advice, I would just tell them to call up Vanguard until they start making some serious coin as a FA will most likely subtract value.
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