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Five Strategies Required for Investing Money

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An investor has many choices that need to be made before investing his/her money. Identify five strategies that need to be reviewed before an investor can reach his/her personal goals. Discuss the advantages and disadvantage to each strategy.

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Growth focused, income focused, value focused, conservative, and spaghetti are five strategies that an individual can use to achieve investment objectives. All five strategies are considered three main elements namely risk, time and diversification that an individual needs to consider, while making an investment. Growth focused strategy helps to identify an investment option that has high potential of growth. This strategy is helpful to determine such option from which one could achieve its growth objectives (Cagan & O'Connell, 2005). This exposes high risk for the investors and it is the major disadvantage of this ...

Solution Summary

The solution explains five strategies than are used to achieve investment objectives and outlines the advantages and disadvantage of the strategies.

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Cliff Swatner is single, 33, and owns a condominium in New York City worth $250,000. Cliff is an attorney and doing well financially. His income last year exceeded $90,000, and he has sufficient liquid assets to supplement his condominium and other tangible assets. Several years ago, Cliff began investing in stocks and bonds. He made his selections on the basis of articles he read describing good investment opportunities. Some have worked well for Cliff, but others have not. Cliff has never taken the time to evaluate his portfolio performance, but he feels it isn't very good. Cliff currently has about $90,000 invested. He has been dating a woman lately and hopes to marry her in three years, at which time he will need $20,000 for marriage expenses and a honeymoon. Cliff's only other objective is to accumulate funds for retirement, but he does not have a specific dollar target for this goal. Cliff feels that he has a moderate risk-tolerance level.

Explain some disadvantages of Cliff's current investment approach.
Construct a portfolio for Cliff, limiting your selections to 5 mutual funds (assume that he sells his current stock and bond holdings). Make sure your plan indicates specific dollar amounts for each portfolio component. Make sure your plan also explains your selections for each portfolio component. Visit an investment firm that deals in mutual funds, such as, Vanguard.com, AmericanCentury.com, Fidelity.com, etc. and select 5 mutual funds that will diversify Cliff's portfolio. Record the fund name, ticker symbol, 5 year average annual returns (can use 3 year if 5 year is unavailable), the amount to be invested in each fund, and the amount returned in 3 years using the 5 years average annual return for the wedding.
Explain how Cliff should periodically rebalance his portfolio, indicating how frequently rebalancing should be done.

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