The purpose of this assignment is to present and defend your investment recommendations based on a client’s scenario.
The purpose of this assignment is to present and defend your investment recommendations based on a client’s scenario.
For this assignment, you will develop a PowerPoint presentation and record yourself giving this presentation using Loom. Your presentation should contain 10-15 slides, and the video of your presentation should be 7-10 minutes long. Your presentation should guide the client through the proposed financial portfolio. The presentation should include the following information:
- Overview of the client,
- Recommendations for the client,
- Asset allocation,
- Expected risk and return,
- Graphs and/or visuals of percentiles,
- Policy statement guidelines and exceptions,
- Objective for the client,
- Portfolio selection,
- Methods used (active/passive),
- Management style,
- Portfolio monitoring/rebalancing,
- Performance review,
- Annual allowable withdraw limit, and
- Sources of reference.
After recording your Loom video, copy and paste the link for your video to the speaker’s notes section of your title slide before submitting your PowerPoint.
While APA style is not required for the body of this assignment, solid academic writing is expected, and in-text citations and references should be presented using APA documentation guidelines, which can be found in the APA Style Guide, located in the Student Success Center.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.
You are required to submit this assignment to LopesWrite. A link to the LopesWrite technical support articles is located in Class Resources if you need assistance.
Overview of the Client
The client, John Phillips, is a 40-year-old finance professional who is married with two children. He has been working with the same financial company for almost 20 years and has a stable job. His investment portfolio is comprised solely of his employer-sponsored IRA account, which currently has a balance of $160,000. John’s goal is to have enough funds in his investment account to yield $20,000 in monthly distributions for a period of 25 years, starting in the year 2050, in order to retire at age 65. The estimated time John will live after retirement is 90 years.
Investment Policy Statement
Investment Objectives
The investment objective is to accumulate enough funds to yield $20,000 in monthly distributions for an approximated period of 25 years, starting in the year 2050, in order to support John’s retirement at the age of 65. The estimated time John will live after retirement is 90 years. The investment portfolio should aim to achieve long-term returns and growth.
Investment Constraints
John’s investment constraints include a limited investment portfolio with no other investments besides his IRA account, which is sponsored by his employer. He has no debt, except for a potential mortgage if he buys a house in the future. John’s preference is for corporate investments, and he is willing to accept a moderate level of risk in his investment portfolio. John’s liquidity needs are low as he has a stable job and no short-term financial obligations.
Time Horizon
John’s time horizon is long-term, as his investment goal is to support his retirement that is more than 20 years away. Therefore, a focus on long-term growth with medium and long-term investments is recommended.
Investment Strategy
The investment strategy for John’s portfolio will aim to achieve long-term growth while managing risk at a moderate level. A diversified portfolio of stocks and bonds will be created with a focus on asset allocation. The portfolio should aim to achieve a return of 6% after the deduction of management fees.
Asset Allocation
The largest portion of the investment portfolio (40%) will be allocated to medium-cap stocks included in the Russell 2000 index, which is composed of the smallest 2,000 companies in the Russell 3000 index. The medium-cap stocks are chosen to balance the risks of small-cap stocks and the stability of large-cap stocks. Since short-term liquidity is not a concern for John, the dividends will be reinvested in order to increase the rate of return.
The remaining portion of the investment account will be allocated in the following proportion: large-cap stocks listed in the S&P 500 (30%), corporate bonds (25%) and US Government Securities (5%). This mix of investments will provide John with exposure to different sectors of the economy and will help balance the risks of stocks and bonds.
Investment Recommendations
The following is a summary of the recommended investments for John’s portfolio:
40% medium-cap stocks included in the Russell 2000 index 30% large-cap stocks listed in the S&P 500 index 25% corporate bonds 5% US Government Securities
Justification of Investment Recommendations
The allocation to medium-cap stocks aims to provide long-term growth with moderate risk. The small companies included in the Russell 2000 index are typically fast-growing and have the potential for high returns, but also have a higher level of risk compared to large-cap stocks. The allocation to large-cap stocks in the S&P 500 index aims to provide stability to the portfolio while still providing exposure to the US stock market. The allocation to corporate bonds aims to provide a steady stream of income with a moderate level of risk, while the allocation to US Government Securities provides an additional level of stability to the portfolio.
Justification based on Modern Portfolio Theory
The recommended asset allocation is based on modern portfolio theory, which states that a diversified portfolio can reduce risk without sacrificing returns (Hu et al.,20190). The asset classes included in the recommended allocation are expected to have low correlation, which can further reduce the overall risk of the portfolio. The use of a Monte Carlo simulation can further help to assess the risk and return potential of the portfolio.
Core Allocation Percentage Targets and Ranges: The core allocation percentage targets and ranges are as follows:
- Medium cap stocks included in the Russell 2000 index: 35%-45%
- Large cap stocks listed in S&P 500: 25%-35%
- Corporate bonds: 20%-30%
- US Government Securities: 3%-7%
Tactical Allocation Percentage Ranges: The tactical allocation percentage ranges are as follows:
- Medium cap stocks included in the Russell 2000 index: 30%-50%
- Large cap stocks listed in S&P 500: 20%-40%
- Corporate bonds: 15%-35%
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