6. Pretend that you are Burton Malkiel. Evaluate the investments in the portfolio below from Malkiel's perspective. Discuss each investment (e.g., the TIAA Real Estate) in a separate paragraphs, indicating whether Malkiel would approve of its inclusion in the portfolio and why. (15 points) Note. We have discussed Malkiel's approach many, many times in class over the semester. You may want quickly to review his approach (see his book A Random Walk down Wall Street which we read earlier in the semester) before answering. A 40 year old single male, has $215,000 saved for retirement. He plans to retire at age 67 (the full social security retirement age for persons born in 1980). His Holdings: Vanguard Target Date Retirement Fund 2045 TIAA Real Estate TIAA Traditional Annuity CREF Stock R1 (TIAA) Total $185,000 $ 10,000 $ 10,000 $ 10,000 $215,000 Vanguard Target Retirement Fund 2045 offers a diversified portfolio within a single fund that adjusts its underlying asset mix over time. The funds provide broad diversification while incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund's target retirement date approaches. Consider this fund if you're planning to retire between 2043 and 2047. Current allocations of Vanguard Target Retirement Fund 2045 Vanguard Total Stock Market Index Fund 53.70% Vanguard Total International Stock Index Fund 36.10% Vanguard Total Bond Market II Index Fund 7.00% Vanguard Total International Bond Index Fund 3.20% Total 100.00% The TIAA Real Estate seeks to generate favorable total returns primarily through rental income and appreciation of a diversified portfolio of directly held, private real estate investments and real estate- related investments and offers investors guaranteed, daily liquidity. The fund intends to invest between 75% and 85% of its net assets directly in real estate or real estate-related investments, which TIAA believes have the potential to generate rental income and appreciation. The remainder of its investments are invested in publicly traded, liquid investments. With TIAA Traditional (annuity), the value of retirement savings is protected and guaranteed to increase every day, even in the most volatile markets. The total interest rate (guaranteed minimum rate amount plus any additional amounts) is paid by TIAA. The minimum guaranteed rate during the accumulation phase for TIAA Traditional under this contract type is 3% for all contributions made since 1979. Per TIAA, the historical rates of annualized return (as of today) vary from a one year return of 3.75% to a 10 year return of 3.96%. The CREF Stock Account is an actively-managed mutual fund that seeks favorable long-term returns through capital appreciation and investment income. Under normal circumstances, the fund invests at least 80% of its assets in a broadly diversified portfolio of common stocks. The fund is managed using a combination three different investment strategies - active management, quantitative and indexing, and invests in both domestic and foreign equities. The fund managers seek to achieve the fund's overall investment objective by managing the fund in segments, each of which may use one of these different investment strategies. The fund may invest in companies of any size. 6. Pretend that you are Burton Malkiel. Evaluate the investments in the portfolio below from Malkiel's perspective. Discuss each investment (e.g., the TIAA Real Estate) in a separate paragraphs, indicating whether Malkiel would approve of its inclusion in the portfolio and why. (15 points) Note. We have discussed Malkiel's approach many, many times in class over the semester. You may want quickly to review his approach (see his book A Random Walk down Wall Street which we read earlier in the semester) before answering. A 40 year old single male, has $215,000 saved for retirement. He plans to retire at age 67 (the full social security retirement age for persons born in 1980). His Holdings: Vanguard Target Date Retirement Fund 2045 TIAA Real Estate TIAA Traditional Annuity CREF Stock R1 (TIAA) Total $185,000 $ 10,000 $ 10,000 $ 10,000 $215,000 Vanguard Target Retirement Fund 2045 offers a diversified portfolio within a single fund that adjusts its underlying asset mix over time. The funds provide broad diversification while incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund's target retirement date approaches. Consider this fund if you're planning to retire between 2043 and 2047. Current allocations of Vanguard Target Retirement Fund 2045 Vanguard Total Stock Market Index Fund 53.70% Vanguard Total International Stock Index Fund 36.10% Vanguard Total Bond Market II Index Fund 7.00% Vanguard Total International Bond Index Fund 3.20% Total 100.00% The TIAA Real Estate seeks to generate favorable total returns primarily through rental income and appreciation of a diversified portfolio of directly held, private real estate investments and real estate- related investments and offers investors guaranteed, daily liquidity. The fund intends to invest between 75% and 85% of its net assets directly in real estate or real estate-related investments, which TIAA believes have the potential to generate rental income and appreciation. The remainder of its investments are invested in publicly traded, liquid investments. With TIAA Traditional (annuity), the value of retirement savings is protected and guaranteed to increase every day, even in the most volatile markets. The total interest rate (guaranteed minimum rate amount plus any additional amounts) is paid by TIAA. The minimum guaranteed rate during the accumulation phase for TIAA Traditional under this contract type is 3% for all contributions made since 1979. Per TIAA, the historical rates of annualized return (as of today) vary from a one year return of 3.75% to a 10 year return of 3.96%. The CREF Stock Account is an actively-managed mutual fund that seeks favorable long-term returns through capital appreciation and investment income. Under normal circumstances, the fund invests at least 80% of its assets in a broadly diversified portfolio of common stocks. The fund is managed using a combination three different investment strategies - active management, quantitative and indexing, and invests in both domestic and foreign equities. The fund managers seek to achieve the fund's overall investment objective by managing the fund in segments, each of which may use one of these different investment strategies. The fund may invest in companies of any size