Case Application: Financial Investments

When it came to investments, Richard and Monica could agree on only one thing-that they would have a tough time reaching a decision on asset allocations and individual investments. Previously, Monica had deferred to Richard on investment matters. Given Richards large recent investment loss, however, Monica was much more forceful in expressing her feelings. She thought that a 40 percent stock, 60 percent bond allocation fit, particularly given the lower level of accumulated wealth they now had. Richard, on the other hand, wanted 100 percent of the funds placed in stocks. He asked if it wasn't true that stock always did better than bonds over the long term. He said that to reach their goals, they needed some aggressive investments. Monica interrupted, saying it was just that "stocks-had-no-long-term-risk" mentality Richard had that led to their investment losses. Richard then volunteered that there was an oil stock, "Energy Gulch" a friend of his recommended that "couldn't lose". He wanted to place 20 percent of his money in it.

Case Application Questions:

1. What do you think of the Richard and Monica argument?

2. Using the asset allocation alternatives listed in this chapter as a guide, what should their asset allocation be? Why?

3. What do you think of the Energy Gulch idea? Why?

4. Select one mutual fund you find attractive and give the reasons why you chose it.

5. Complete the investments section of the financial plan.