Reference no: EM133275475
Case Study: Jean and Raymond Smith (61 and 63 years old-in excellent health):
The Smiths have a solid portfolio of nearly three-quarters of a million dollars. They are both working in secure jobs, and when they retire, their (inflation-adjusted) pensions and Social Security should cover all the basic bills. With their children and grandchildren in mind and having little to risk with any volatility in the markets, Jean and Raymond have decided to invest about two-thirds of their savings (all in their retirement accounts) in equities - mostly stocks, with some commodities. They have chosen to invest the other third (about $235,000) in fixed income (bonds). Here is a summary of what they want:
An emergency financial reserve. Because both are older than 59 ½ and are allowed to pull from their retirement accounts without penalty, they want three months' living expenses ($15,000) to be kept in cash or in a very short-term bond fund.
They are left with $220,000. They don't intend to touch this money and their children and grandchildren inherit their estate. They want to invest in higher yielding bonds. Just in case the economy takes a real fall, and the lion's share of the estate goes with it, these bonds should be strong enough to stand tall. From the higher-yielding bonds they want:
30 percent of the remaining money (approximately $66,000) to be put into intermediate-term conventional treasuries, either in a bond fund or individual bonds.
30 percent (approximately $66,000) to go into a fund of investment-grade corporate bonds.
30 percent (approximately $66,000) of the bond allocation to go to Treasury Inflation-Protected Securities (TIPS).
10 percent (approximately $22,000) of their bond allocation to a foreign bond fund.
For your discussion, address the following:
What short-term bond would you recommend?
What higher yielding intermediate-term conventional treasury bond would you recommend?
What higher yielding investment-grade corporate bond would you recommend?
What higher yielding TIPS bond would you recommend?
What higher yielding foreign bond would you recommend?
Be sure to provide a simple explanation for your selections.