An investor wants $100,000 of retirement income starting in 30 years. The investor wants to plan to spend through age 100 after retiring at age 60 to be safe ( 40 yrs). The investor has no investable funds today but over the next 30 years wants to save, on average 19,000 a year. The risk tolerance for the next 30 years in the accumulation stage is aggressive while in retirement for 40 years it is conservative. The investor wants to keep all assets in Canada but is interested in diversification into the US as an alternative. A return goal of 6% in retirement will be used to estimate the portfolio amount needed at retirement. During accumulation a desired return is 8%. The funds will be saved in a registered retirement savings plan. No funds are required for donations or family inheritance at death. Cash should be 5% of a portfolio for liquidity purposes.

S&P TSX CANADIAN BONDS CANADIAN TBILLS S&P 500 US BONDS

Next 30 yrs 9% 5% 3% 10% 5%

40 years into retirement 9% 5%. 3% 10% 5%

A. What is the desired amt of the portfolio at age 60 retirement?

B. Why would the risk tolerance change in retirement?

C. Which portfolio mix would you pick to achieve the desired return in the accumulation years?

%mix return weighted return

S&P TSX 9%

CDN BONDS 5%

CDN TBILLS 5% 3%

TOTAL 100% approx 8%

D. What are some advantages of adding US asset classes to the mix?

E. What is a feature or characteristic of the asset classes before, you should cover with the client?

Stocks :

Long bonds:

TBILLS:

F. Which portfolio mix would you pick to achieve the desired return in the retirement years

%mix return weighted return

S&P TSX 9%

CDN BONDS 5%

CDN TBILLS 10% 3%

TOTAL approx 6%

G. Which two items from an investment policy statement would you indicate to the client?