Your clients, Barry and Tonya Smith, have notified you that they have received a one-time payment of $600,000. They are employed as a carpenter and school teacher, are between 35 and 40 years old and have combined annual salaries of about $70,000. They have two children, 15-year-old Brittany and ten-year-old George. Assume that after initial estimated taxes and personal decisions that the Smiths' have $400,000 to invest but that $100,000 of that amount must be invested in cash or very-short-term investments because of some uncertainty about taxes and other contingent issues.

Question 1

Part 1:

In general and assuming a weakly growing economy continues, should the Joneses emphasize growth, income or liquidity in their investing of the $300,000? Justify your answer.

Part 2:

Find two to four funds from the following low-fee mutual fund families: Dreyfus, Fidelity, Franklin, T Rowe Price and Vanguard (you can use more than one of these families) which you believe fit well with your answer to [A] above and with the likely needs of the Jones family for the $100,000 cash/very-short-term portion and allocate in $10,000 chunks the $100,000. Justify your selections.

Part 3:

Assume that the Smiths' have $100,000 remaining on their 6% mortgage and that they expect college to cost $80,000 for the two children (which appear to be on track for college). Should any of the $300,000 go either into paying off their mortgage or a state (Section 529) education savings plan? If so, how much (to the nearest $10,000)? Question

Part 4:

Are there any other uses besides investment which the SMiths' should consider. If you believe so, [a] state your assumptions for this use and [b] clearly justify the money to be used in this way.

Part 5:

With whatever remains of the $300,000 after parts [C] and [D], find three to six funds from the fund families mentioned in part [B] and allocate the remainder in $10,000 increments. Justify [a] if total amount allocated is less than $200,000 why {C} and [D] needed to be such a large share of the $300,000, [b] why you chose the funds used for the investments.

Part 6:

Prepare a table where you clearly spell out how the $400,000 should be allocated. Question Part 7) Indicate any additional information which you would have LIKED to have had before completing this project.