Pete is 65 years old, married, and has three adult children. He is currently employed in the energy industry and earns roughly $1 million annually. He anticipates retiring completely from this position next year and relying solely on his portfolio to maintain his and his wifes combined spending level of $400K annually. In addition to these portfolio assets, they also own a $2 million home in The Woodlands. Pete and his wife have no other financial assets or business interests. Beyond the value held in this portfolio, the only income they will receive is Social Security, which is not particularly impactful given their level of assets and spending.Pete is more risk averse than the average client. His approach to investing generally places wealth preservation as the top priority, followed by keeping up with inflation, and capital appreciation after that. The volatility in financial markets during the onset of the Covid crisis was unsettling to Pete despite his ability to weather the storm.

Preferred stocks are generally issued by banks and other financial institutions. While they often pay relatively high-interest rates compared to bonds from similar issuers, their total returns are capped at that yield. In other words, there is little opportunity for capital appreciation. Furthermore, the income received is taxable as ordinary income. Given what you know about Pete, is the allocation to preferred stocks appropriate? Why or why not? What recommendation would you make to increase his expected total return?

Taxable Investment Account Allocation Use this to respond to the Taxable Investment Account Allocation questions on the next slide. Taxable Investment Accounts Charles Schwab: $7,101,300 Charles Schwab: 410,400 Total: $7,511,700