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Joe and Sally's Case Study: Investment Portfolio Analysis

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Investment Portfolio
Using the new Statement of Cash Flows and Net Worth Summary for Joe and Sally Williams and the Asset Allocation Questionnaire below, develop an investment portfolio that is appropriate based on the Williams' time frame and risk tolerance. Allocate their portfolio among the following asset classes on a percentage basis (e.g., 33% cash, 34% bonds, 33% equities):
? Cash
? Bonds
? Equities
Be sure the total equals 100%, and justify how you arrived at your allocation.
Identify potential goals that Joe and Sally have and evaluate strategies to help clients achieve their goals.
Construct/create a (very) basic personal financial statements for Joe and Sally (cash flow and Balance Sheet statements) and use ratios or other techniques to analyze these statements.
Evaluate the need for credit/ planned borrowing to meet household consumption or asset acquisition (such as a car).
Identify possible strengths and weaknesses in Joe and Sally's initial situation and determine opportunities for problem solving.

Joe and Sally Williams
Asset Allocation Questionnaire
1. What is your time horizon for this investment?
a. Short-term (less than 1 year)
b. Intermediate-term (1-7 years)
c. Long-term (7+ years)
2. How would you describe your investment experience?
a. None
b. Some
c. Extensive
3. Do you intend to withdraw retirement savings from non-retirement expenses?
a. Yes; for immediate goals, I would make significant withdrawals.
b. Yes, but only in an emergency.
c. I have no intention of withdrawing for non-retirement investments.
4. How long would your long-term savings last in the event of an emergency?
a. 0-3 months
b. 3-11 months
c. 1 year or more
5. How much monthly income is used to pay installment debt (not mortgage)?
a. I have no installment debt.
b. Less than 25% is used for installment debt.
c. 25-50% is used for installment debt.
d. More than 50% is used for installment debt.
6. Describe your expected future salary or earnings in the next 5 years.
a. I do not expect it to exceed inflation.
b. I expect it to keep pace with inflation.
c. I expect it to exceed inflation.
7. Would you take more risk for your investment to exceed inflation?
a. Yes
b. Maybe some
c. Definitely not
8. How would you react to a steep decline in the equity market?
a. I would be comfortable and see it as a buying opportunity.
b. I would be comfortable but do nothing.
c. I would be uncomfortable but do nothing.
d. I would be uncomfortable and switch to less volatile investments.
9. If you had $100,000 invested and it lost $20,000 (20%), how would you react?
a. Sell the investment entirely.
b. Hold on to it, and do nothing.
c. See it as a buying opportunity, and invest more.
10. If the portfolio in question 9 dropped another 15% ($12,000), how would you react?
a. Sell the investment entirely.
b. Hold on to it and do nothing.
c. See it as a buying opportunity, and invest more.
? 0-18: Conservative
? 18-26: Moderate to Conservative
? 27-35: Moderate
? 36-44: Moderate to Aggressive
? 45+: Aggressive
Question A B C D Score
1 0 5 10 10
2 0 2 5 2
3 0 3 6 6
4 1 4 7 1
5 10 7 4 0 4
6 2 4 6 6
7 5 3 1 5
8 8 5 3 0 3
9 0 3 7 3
10 0 5 10 5
Total 45.

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Solution Preview


An analysis of Joe and Sally's responses in the asset allocation questionnaire indicate the following:
1. The couple has some expertise on investment.
2. They are efficient in fund allocation. They do not go the extent of misallocating their retirement savings into nonretirement-related expenditures.
3. The couple does not have much savings. Their current savings is only enough to last for three (3) months of emergency.
4. The couple is still open for long-term investment, that is, for 7 years and above.
5. The couple is spending 25 - 50% of their monthly income in paying installment or amortization for their debt.
6. Expected future salary would allow the couple to cope with inflation problems.
7. The couple is not much affected with a decline in equity market and is willing to hold on their investments despite adverse situations.
8. Joe and Sally are risk takers.

9. On the overall, they are aggressive ...

Solution Summary

The solution provides an investment portfolio analysis that identifies possible strengths and weaknesses in the situation.

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Case Study:
It is December 15, 2015. Joe Schmoe, the VP of Marketing at Clipboard Tablet Co., is smugly patting himself on the back for how well he has done with pricing and product development on the three products, X5, X6, and X7. He knows his strategy was not very creative, since he did not change any prices or R&D allocations over the four-year period (actually six years, counting 2010 and 2011). But he is certain that he did not need to change anything, and that his overall performance is proof.

1. Run the simulation using the Default Decisions. In other words, use the prices and R&D percentage that are already there. Capture or collect the results for each product (X5, X6, X7) as you run each year. Copy (using Excel, by hand, or some other method) the Financial results and Marketing results, as well as the information provided by the Advisor.

However, Sally Smothers, CEO of Clipboard Tablet Co., has a different opinion, and she fires Joe.
You are hired. You applied for the position a few weeks ago and interviewed, unaware of the fate of Joe Schmoe at the time. So here you are, Dec. 15, 2015, VP of Marketing at Clipboard Tablet Co., and ready to move the company ahead into 2016. Your boss, Sally Smothers, is expecting you to take over and move the company forward in terms of product development, and smart pricing. Sally wants to make sure that you are ready to move ahead and asks you to review the past four to six years to see what was going on in terms of product development, sales, pricing, and performance against the competition. You collect all of the data and write a report which is due on Sally's desk January 2, 2016.

2. Analyze the results of Joe Schmoe's decisions and then write the report that Sally is requesting. Run the simulation of the Clipboard Tablet Co. using the default decisions. Access the simulation site and collect the data for each year (or you can download a copy of it - see below). Make a Case for your proposed strategy using financial analysis and relevant theories.

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