Investment philosophy & risk tolerance
As Ida May Goode is 43 years old and close to retirement, and she has 3 children who are in college or may choose to attend college, she would prefer low risk investment. At this stage of life cycle, her investment should be as a supplement of the existing retirement plans and provide a cushion for financial emergencies and the possible college fee for her twin boys who have not yet made decisions about college. Also, as her husband Ernie is running a small moving van and storage business and the business not as good as expected, she may use the funds as capital for Ernie's business or possible expansion of there farming interests. As her family has its own house, she does not need to be concerned with the cost of housing, this could increase her risk tolerance. Also, they have already accumulated $97,000 in the retirement savings, this could act as a cushion when financial emergencies come. On the whole, her risk tolerance is a little bit lower than moderate, close to moderate. Therefore, her investment philosophy should be to deliver long term growth while managing risk at a moderate level.
As my client's investment philosophy is capital preservation and long term growth, and she is willing to accept moderate risk or the risk close to it, my investment strategy is constructing a portfolio that manages risk while maximizing long-term performance and selecting a mix of investments to provide the best possible return for her personal level of risk tolerance.
First, because she has a certain risk tolerance, I choose ketchup king H.J. Heinz (HNZ), cracker cooker Kraft Foods (KFT), and soda seller Coca-Cola (KO) as the securities to ensure that parts of my client's investment could be capital preservation and could generate profit with less risk. Each 1000 shares. The reason I choose these three stocks is that these three stocks are exactly the kinds of stocks that will be harmed least by a slowdown in consumer spending. Their products are necessary to people even when the economy experiences a downturn, therefore their sells would not be affected much by the general economy environment.
Second, I choose Take-Two interactive software(TTWO), Microsoft Corp(MSFT), and Activision Blizzard Inc(ATVI) as securities that are more profitable than the first three stocks, with more risk. Each 1000 shares. The reason I choose Take-Two interactive software is that this company recently released a popular video game called GTA4, and it shows huge sale potential. This company also has other big titles close to release date, therefore I forecast that the profit of the firm would increase in the 3rd and 4th quarter. I choose Microsoft Corp because it will release a new model of XBOX360, a next-gene gaming console that dominate the market; and it will have a new market plan for the holiday season with a significant drop in price. I choose Activision Blizzard simply because this firm is a new firm that resulted from a merger of Activision and Blizzard, which are leading publisher and leading developer in the game industry. This new firm has several huge titles that come from the original company, and the firm has a series of games waiting to be released in the holiday season. Also, it has some popular games in development. This new company is promising.
Third, I choose 100 shares, JEFFERSON CNTY NEB HOSP AUTH N REV BDS as municipal bond in my client's portfolio. Its maturity date is 01-15-2017. I invest $10,000 each in 1st Source Monogram Income Equity (FMIEX) and AFBA 5Star Balanced Adv (AFSAX). These two are mutual funds that have been evaluated as above average return rating and below average risk rating funds. I also purchase 20 units of US TREAS BOND 11/15/1988-11/15/2018 which has a 9% return. These part of investment would be used to achieve capital preservation and long term growth with low risk.
I choose DJIA, S&P500,…