Case Problem 12.1

Reverend Mark Thomas Ponders Mutual Funds

LG3 LG5

The Reverend Mark Thomas is the minister of a church in the San Diego area. He is married, has one young child, and earns a modest income. Because religious organizations are not notorious for their generous retirement programs, the reverend has decided he should do some investing on his own. He would like to set up a program that enables him to supplement the churchs retirement program and at the same time provide some funds for his childs college education (which is still some 12 years away). He is not out to break any investment records but wants some backup to provide for the long-run needs of his family.

Although he has a modest income, Mark Thomas believes that with careful planning, he can probably invest about $250 a quarter (and, with luck, increase this amount over time). He currently has about $15,000 in a savings account that he would be willing to use to begin this program. In view of his investment objectives, he is not interested in taking a lot of risk. Because his knowledge of investments extends to savings accounts, Series EE savings bonds, and a little bit about mutual funds, he approaches you for some investment advice.

Questions

In light of Marks long-term investment goals, do you think mutual funds are an appropriate investment vehicle for him?

Do you think he should use his $15,000 savings to start a mutual fund investment program?

What type of mutual fund investment program would you set up for the reverend? Include in your answer some discussion of the types of funds you would consider, the investment objectives you would set, and any investment services (e.g., withdrawal plans) you would seek. Would taxes be an important consideration in your investment advice? Explain.