Week 6 B - What to Do with "Extra" Money?/ Dilemma: Common Stocks, Mutual Funds, or ETFs? What to Do with "Extra" Money? A couple in their early 30 s, Leah and Eric Mathews recently inherited $90,000 from a relative. Eric earns a comfortable income as a sales manager for Atmospheric Instruments, Inc., and Leah does equally well as an attorney with a major law firm. Because they have no children and don't need the money, they've decided to invest all of the inheritance in stocks, bonds, and perhaps even some money market instruments. However, because they're not very familiar with the market, they turn to you for help. 1. What kind of investment approach do you think the Matthews should adopt- that is, should they be conservative with their money or aggressive? Explain. 2. What kind of stocks do you think the Matthews should invest in? How important is current income (i.e., dividends or interest income) to them? Should they be putting any of their money into bonds? Explain. 3. Construct an investment portfolio that you feel would be right for the Matthews and invest the full $90,000. Put actual stocks, bonds, and/or convertible securities in the portfolio; you may also put up to one-third of the money into short-term securities such as CDs, Treasury bills, money funds, or MMDAs. Select any securities you want, so long as you feel they'd be suitable for the Matthews. Mako sure that the portfolio consists of six or more different securities and use an online source such as hitp:ifinance.yahoo.com to determine the market prices of the securities you select Show the amount invested in each security along with the amount of current income (from dividends andior interest) that will be generated from the investments. Briefly explain why you selected these particular securities for the Matthews' portlolio. Dilemma: Common Stocks, Mutual Funds, or ETFs? Kyle Watkins has worked in the management services division of Niche Consultants for the past 5 years. He currently earns an annual salary of about $120,000. At 33 , he's still a bachelor and has accumulated about $100,000 in savings over the past fow years. He keeps his savings in a money market acoount, where it earns about 3 percent interest. Damon wants to got "a bigger bang for his buck," so he has considered withdrawing $50,000 from his money market account and investing it in the stock market. He feeis that such an investment can easily eam more than 3 percent. Andrea Berry, a close friend, suggests that he invest in mutual fund shares. Kyle has approached you, his broker, for advice. a. Explain to Kyle the key reasons for purchasing mutual fund or ETF shares. b. What special fund features might help Kyle achieve his investment objectives? c. What recommendations would you make regarding Kyle's dilemma about whether to go into stocks, mutual funds, or ETFs? Explain. d. Explain to Kyle the rationale for choosing ETFs over mutuat funds
