Investment Portfolio Project 

source:  http://shs.westport.k12.ct.us/parker/econ/files/invest_proj.htm

Your task is to evaluate the goals of two different investment objectives, create a portfolio that will satisfy those goals based on historical investment performance research and your projects of future potential of investment selections.  You need to consider the level of risk appropriate for each portfolio and assess the portfolio components that will help your “clients” to attain their goals.  Additionally, you must evaluate and weigh other factors that could affect the performance of your portfolio, including global and national economic issues, political events, and social anomalies and customs.  Consider whether your portfolios should be balanced or weighted in favor of growth assets or fixed income.  Be sure to consider whether your investment strategy will change as the portfolio nears maturity. 

Part 1:

Big Red and Ima Hiney have just had a baby.  Thor, who was born on August 1, 2019, is a healthy and happy child, and the Hineys have already begun worrying about how to finance Thor’s college education.  Assume the following:

• Thor will graduate from high school at the age of 18 and go directly to a four year college

• Thor will complete his undergraduate education in four years

• Thor will go to one of the following institutions:  (pick one)

  • Columbia University, New York City

  • University of Michigan

  • University of California, Los Angeles

  • University of Minnesota

  • Concordia

  • William and Mary

  • Duke University

  • University of North Carolina, Chapel Hill

  • Colgate University

  • Lehigh University

   

• College tuition will rise at the rate of 2% per year for private institutions and 2.5% per year for state schools.

• Big Red currently works as a middle manager and earns $65,000 per year; he expects annual raises of 2.5%

• Assume Big Red will receive a $3,000 bonus, adjusted 2% per year for inflation, every OTHER year before the program is discontinued in 5 years.  He will receive the first bonus this year. 

• Ima does not want to work before Thor enters middle school, and after that time, will only consider working part-time as a legal secretary.

• Both Ima and Big Red are currently 35 years old

• After taxes, Big Red brings home about 63% of his base pay; remember bonuses will also be taxed (state + federal)

• The Hiney’s currently have $6,000 in a mutual fund account; any have $5,500 in credit card debt.

• The Hineys go on vacation every year.  They currently spend approximately $1,500 each year; they expect the costs to increase by 1% annually.

• Although the Hiney’s car payment will remain fairly constant, they plan to purchase a new car every 5 years and will need to make a $4,000 down-payment. 

• Assume they will buy a new car in 2018.

The Hiney’s monthly expenses are as follows:

Assume that utilities, food, clothing expenditures, and entertainment costs rise 2% per annum.

Before you start planning for Thor’s education, be sure to set up an emergency expense fund for the Hineys.  This should equal approximately six times their monthly expenses.

Part 2:

Using the above facts, add that Big Red and Ima would like to retire at age 62.  They are only planning to have the one child.   Big Red intends to stay working with the same company.  They currently have a pension plan that will pay him 75% of the average of his last three year’s salary (directly before retirement) if he stays 30 years.  He will have his 30^th year of service when he turns 65.  He is NOT eligible for a 40l(k).

Big Red and Ima think they will need at least $50,000 after tax (at TODAY’S dollars) income per year in order to enjoy retirement.

Your task:

• Choose a college for Thor will go to and calculate how much it will cost for his first through fourth years;

• Decide how much per month the Hineys can save and decide how they should invest their savings.  Keep in mind historical returns on assets and the fact that they should liquidate riskier assets as they near their goals.

• Construct an Excel spreadsheet for the Hineys that will show them how much they are spending, saving, and earning through investment.  You should keep a running tab of their income and expenses, including their different investment accounts, from today through the date of retirement.

• Determine whether Ima can “afford to stay home” and not work. 

• Can the Hineys send Thor to college without having him take out student loans? 

• Can the Hineys retire at age 62?  (The answers to all of these questions should be in your final report).

• Could the Hineys still retire at 62 if the following happens:

  • Ima’s mother becomes ill and her insurance does not cover the level of nursing care Ima wants her mother to have.  The retirement village her mother has chosen to live in costs $3,500 per month.  Ima and Big Red will need to supplement her income with $1,000 per month for 10 years. The Hineys are 52 when Ima's mother goes into the nursing home.

  • Thor decides to go to medical school at the University of Virginia.  Can Ima and Big Red pay his tuition?

   

ALL OF YOUR ANSWERS TO THE ABOVE SHOULD BE EVIDENCE IN YOUR EXCEL SPREADSHEETS AND A FINANCIAL PLAN FOR THE HINEYS.