Case Application

Case Application: Read case application ‘Household Investments’ and the Dan and Laura Comprehensive Financial Plan given below:

Household Investments

Unlike Richard, Monica remained very concerned about their financial future. Specifically, she was fearful that the couple would not have enough money to retire comfortably as they had expected. She asked whether she should postpone or eliminate one improvement on her house. She estimated that a new furnace with a useful life of eight years would cost $20,000 and would save $4,000 a year in heating bills.

When it came to investments, Richard and Monica could agree on only one thing—that they would have a tough time reaching a decision on asset allocations and individual investments. Previously, Monica had deferred to Richard on investment matters. Given Richard’s large recent investment loss, however, Monica was much more forceful in expressing her feelings. She thought that a 40 percent stock, 60 percent bond allocation fit, particularly given the lower level of accumulated wealth they now had. Richard, on the other hand, wanted 100 percent of the funds placed in stocks. He asked if it wasn’t true that stocks always did better than bonds over the longer term. He said that to reach their goals, they needed some aggressive investments. Monica interrupted, saying it was just that “stocks-had-no-long-term-risk” mentality Richard had that led to their investment losses. Richard then volunteered that there was an oil stock, “Energy Gulch,” a friend of his recommended that “couldn’t lose.” He wanted to place 20 percent of his money in it.



Case Application Questions

1. Do you think she should consider a new furnace now? Complete the furnace problem to support your response.

2. Using the asset allocation alternatives listed in this chapter as a guide, discuss what should their asset allocation be in 2-3 paragraphs? Why?

3. What do you think of the Energy Gulch idea? Explain why in 2-3 paragraphs.

4. Select one mutual fund you find attractive and give the reasons why you chose it. (Explain in 2-3 paragraphs)

5. Use your narrative answers to questions 2 thru 4 above to complete the “FINANCIAL INVESTMENTS” section of the financial plan. (other attached file)

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