1. Design an investment portfolio that is appropriate for your client:

• He is 60 years old and plans to retire within 5 years.
• He has $4 million to invest.
• He is primarily interested in creating steady income from the portfolio. His goal is $120,000 per year.
• He is also concerned about inflation and therefore wants the portfolio value and income to keep pace with inflation.
• The portfolio must be diversified with stocks, bonds, cash, etc.
• He is willing to assume a moderate level of risk. You must consider stock market risk and bond risk (e.g. duration):
  • Please calculate the beta for each holding where available.
  • Please calculate duration for each where available. https://www.youtube.com/watch?v=i8iqrhdRoo8
• All securities must be publicly traded securities. Mutual funds and ETFs must have at least a 5 year track record. Please show actual performance of portfolio for last 5 years.
• Please show the allocation and annual income for each investment position in the portfolio.
• Please include the following 3 "stress tests":
  • 10% decline in S&P 500 index, no change in interest rates
  • 20% decline in S&P 500 index, no change in interest rates
  • 0% decline in S&P 500 index and a 1% increase in interest rates
• Please calculate the annual expenses in the portfolio (e.g. mutual funds and exchange traded funds)

Here are a few helpful suggestions:

• Performance (Stress Tests) need to include a securities level analysis. For example, each stock (or fund) should be tested against its' respective Beta.
• If you are including bond funds in your portfolio, you can easily get the Duration on the fund managers website.
• If you are using CDs in the portfolio, you can assume the Duration is equal to the maturity date of the CD.
• Remember, your client wants the value of the portfolio to keep pace with inflation. This is why you should only use securities that have a track record of at least 5 years. You can assume that the future performance of the portfolio will be equal to the past performance.