Reference no: EM132165897
Problem - Ruby just turned 66 years old and resides in Alberta. She is a widow with two grown children, Carl and Todd. Ruby is working with you to develop a plan for her investments. She is retired and receives a total of $900 per month after tax from government benefits. She has $1,500,000 in her current non registered investment portfolio that she expects will cover her needs for the remainder of her lifetime and a home valued at $370,000. She needs $7,200 per month after tax to cover living expenses; she does not expect to live beyond age 92. Both her expenses and government benefits are expected to grow at the rate of inflation (2% per annum). She has an additional $1,000,000 she is considering gifting to her two sons which is all held in one bank stock. The adjusted cost base of the holding is $600,000.
Carl is 29 years old, single and has held a variety of odd jobs since graduating college. He has an entrepreneurial spirit and has very sporadic income. He needs about $45,000 to cover his annual living expenses. He is currently receiving $22,000 in after tax income.
Todd is 35 years old and married with two children and a third on the way. He has a secure jot with the public service and is considered a very reliable and responsible with money.
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Portfolio 1
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Portfolio 2
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Portfolio 3
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Portfolio 4
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Cash
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5%
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10%
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10%
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20%
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Fixed Income
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20%
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40%
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50%
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20%
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Domestic Equity
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30%
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20%
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20%
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20%
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International Equity
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30%
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20%
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15%
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20%
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Alternative Investments
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15%
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10%
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5%
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20%
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a) What is the real after tax rate of return that Jules Ruby must earn on her non- registered investment portfolio to meet her needs during her lifetime.
b) If Jules portfolio earns an after tax real rate of 5% per annum, compounded monthly, what amount would her sons inherit if she passed away just after she turns 85.
c) Indicate which life stage Ruby finds herself in and recommend an asset allocation based on the information provided.
d) Jules Ruby asks you whether she should sell all of her bank stock holding? Consider investment planning principals and provide her with one reason in support of selling and one reason in support of keeping the stock.
e) Suppose Ruby sells the bank stock and gifts each son a net amount of $470,000 Select a portfolio asset allocation for each son from those listed in the table below and support your selection based on the information provided.