Provide financial advices for clients to meet their financial goals and address their concerns.

You may include the content as:

Recommend two portfolios: one for accumulation stage, and the other for retirement stage. Both of them need to be on the efficient market frontier. List portfolio weights and explain the rationale to your clients.

financial model inputs: the cash flow estimates or other assumtions.

Historical Returns (volatility, Sharpe ratio, Sortino ratio, and Jensen's alpha for each of the portfolios for last 1, 3, 5, and 10 years, respectively. )

Expected Returns (volatility, and sharpe ratio for each of the portfolios)

Special Issues: Address special issues raised by the clients

Below is the specific information of the clients.

Alice, 33, and Peter, 33, are married with two young kids. They saved a lot in the last few years and recently purchased a townhouse in City of Vancouver. Now they come to you for financial advice in the next chapter of their life.

[Note: in Canadian dollars unless otherwise stated.]

Financials:

Alice is a software engineer. Her take-home pay is $120,000 per year. Peter works in the public sector and has a monthly after-tax salary of $5,000. Peter has a defined benefit (DB) pension plan provided by his employer. The replacement ratio of the DB plan is 70%. Alices employer does not provide any group retirement plan. Alice has $50,000 invested in a Vanguard stock ETF (TSX: VFV) in her individual retirement account (RRSP in Canada, traditional IRA in the U.S.A) account. Peter purchased half (0.5) of a bitcoin at US$50,000 per coin in February 2021 for a quick buck after the news that Tesla started accepting bitcoin as payment method. With a paper loss, Peter decided to hold the bitcoin for the long term. Alice and Peter share finances.

Home:

Alice and Peter bought a 4-bedroom 1500-sqft townhome with a price tag of $1,200,000 two months ago and just moved in. They used their savings of $120,000 and a gift of $120,000 from their parents as the down payment, and borrowed $960,000 from Royal Bank of Canada (RBC). The mortgage has a term of 5 years with fixed interest rate of 2.49% per year and a 30-year amortization period. Their monthly payment is $3,782. Alice and Peter have the option to increase the monthly payment in order to pay off the mortgage early.

Car:

Alice and Peter bought a Tesla Model S last year with a car loan. They are making monthly payment of $1,000. There is 7 years remaining in the loan. They love their Tesla!

Kids:

Both of their kids (2 and 4) are in the daycare. They are paying $1,000 per month for each kid prior to the school age. Alice and Peter received generous financial support from their parents before so they would love to support their kids as much as they can.

Other expenses:

In addition to the expenses (mortgage, car loan, and daycare) mentioned above, the family has an annual budget of $60,000. Alice and Peter would love to have the same budget (in todays dollar) for the retirement.

Financial Goal:

Their primary goal is to retire early, prior to the age of 65, preferably at age of no more than 55. The secondary goal is to support their kids for college education and home purchase. They intend to donate at least 50% of their estate if any to charity.

Taxes:

Alice and Peter have plenty of contribution room in their tax-free and tax-advantaged accounts.

Special issues:

• Royal bank provides a prepayment option to them. Alice and Peter wonder if they should increase monthly mortgage payments in order to pay off the mortgage earlier. If so, how much should they pay each month?
• They heard something about registered education savings plan (RESP in Canada, 529 plan in the U.S.) from a friend but know very little about it. They want to know the benefits of the plan and if they should open up accounts for their kids.
• Alice and Peter have no life insurance coverage yet. They wonder if they should buy one. If so, which type of life insurance policies would you recommend and why?