Case 4 The Johnsons Decide to Invest Through Mutual Funds After learning about mutual funds, the Johnsons are confi -

dent that they are a great way to invest, especially because of the diversifi cation and professional management that funds off er. The couple has a fi nancial nest egg of $9500 to invest through mutual funds. They also want to invest another $300 per month on a regular basis.

Although not yet completely fi rm, Harry and Belinda’s goals at this point are as follows:

• They want to continue to build their retirement income to retire in about 36 years.

• They will need about $10,000 in six to eight years to use as supplemental income if Belinda has a baby and does not work for six months.

• They might buy a luxury automobile requiring a

$10,000 down payment if they decide not to have a child.

Knowing that the Johnsons have a moderate investment philosophy, that they live on a reasonable budget, and that they have a well-established cash-management plan, advise them on their mutual fund investments by responding to the following questions:

(a) After looking at Table 15.2, would you recommend they invest in a stock fund, a bond fund or both? Why?