Asset Allocation – Review Question 2 (Jessica)
To obtain full marks your answer should discuss briefly most of the following points:
Policy Statement aspect Jessica
Life insurance definitely needed as Jessica has 2 young
a. Insurance children and a dead-beat ex-husband. Disability insurance
also needed. Perhaps house insurance as she has no
b. Cash Reserves Short term investments should = at least 6 months
expenses. Perhaps more if her new business takes a while
to generate enough income.
2. Life Cycle Stage Between Accumulation and Consolidation
a. Short-term goals She will need to generate income or dividend income on her
portfolio as her expenses next year are greater than her
Protect her portfolio from inflation.
b. Long-term goals Children’s education
3. Investment Objectives
a. Risk Tolerance Moderate (to high) – Jessica has a very good nest egg,
potentially high earnings and a long time until retirement.
b. Return Requirements Total Return –capital appreciation (to offset inflation) and
generate income next year.
4. Investment Constraints
a. Liquidity Will need to generate $30,000 on $800,000 portfolio
(3.75%), if she does not want to sell her house or draw