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 father’s 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 children’s 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 husband’s decision and, if needed, provide an alternative investment strategy.
He plans to invest 50% of the inherited money in a small cap fund and the other in an emerging market fund.
They are unhappy about portfolio volatility and do not want to suffer a loss of more than 12% in one year.
What her husband's have to to do to avoid these things?