Case Study on Managing an Investment Portfolio

As a recently hired CFA financial analyst for Horizon Investments you have been asked to make portfolio recommendation and setup an investment policy statement for three clients of the firm.

1) John Lambert has recently received his MBA and currently works for Oracle. He is 26 and recently married. He and hid wife have saved nearly $100,000 for a down payment on a home. He contributes 10% of his salary to a 401K and Oracle provides a 10% match. The investments are made in mutual funds run by Fidelity Investment. The 401K offered by Oracle has access to all of the funds offered by Fidelity. John Lambert needs to have a detailed investment plan set up for his 401K including the name of the funds and percentage of portfolio to be invested in the funds.

2) Elizabeth Yeo, aged 60, is managing director of USX and plans to retire in one year. Yeo will receive a lump sum severance payment of $500,000 from the company and plans to close out her company 401K which is entirely invested in USX stock where she has currently about 35,00 shares. Yeo is widowed and has a son who is married and who has a high-level position at an investment bank. Yeo maintains a money market fund currently value at $1.1 million and earns about 1.2% annually. She has a home, zero mortgage, currently valued at about $1 million and plans to continue living there. She also plans to begin to collect social security at the age of 62. Her living expenses, including maintaining the home, are about $80,000 a year. Her living expenses are expected to grow at an annual rate of 3 percent throughout her retirement period, which is expected to be 25 years given her familys mortality history. You are requested to prepare an investment policy statement for Yeo and make some investment recommendations.

3) Christopher Maclin, aged 40 is a supervisor at Barnett Co. and earns an annual salary of $100,000. Louise Maclin, aged 38, stays home to care for their newborn twins. She recently inherited $1.3 million (after taxes) in cash from her fathers estate. In addition, the Maclins have $20,000 in cash and $150,000 in Barnett common stock. They are unhappy about portfolio volatility and do not want to suffer a loss of more than 12% in one year. They recently purchased a new home. They need sufficient funds to fund their childrens college education and Christopher plans to retirement at age 65. Christopher is not very knowledgeable about finance but read that small cap and emerging market stocks provide the highest return over the long run. He plans to invest 50% of the inherited money in a small cap fund and the other in an emerging market fund. His wife is concerned about the decision. She requested Horizon review her husbands decision and, if needed, provide an alternative investment strategy.