Equity holdings for individual investors
Client #2018-03a: Kim and Rich (6-10 pages, excluding appendices).
Rich and his wife Kim are both very interested in having your help to invest their funds, and they will pay you a decent amount for it (and let you all use their complimentary passes to Sugar Bowl and Squaw Valley!). Rich is a chemist (plastics, industrial applications) and works in a large firm located in the Bay Area. His wife has an undergraduate degree in business (University of Virginia, Marketing major), and works for a well-known marketing firm. They have two children (10 and 8 years old), have their retirement needs covered by their 401(k) plans at work, and would like to put together an investment plan. At the moment, they have $150,000 in cash, which they were thinking of investing in real estate. They actually looked into a couple of places (Miami area, and Phoenix). They also have about $175,000 in the Vanguard 500 Index (VFINX), and another $125,000 in a bank savings account. The options they have been considering are:
. a) Going forward with the real estate investment, and finding some additional mutual funds in which to invest the excess cash.
. b) Putting together a “big chunk” of funds and investing in individual stocks (target 10 firms). They would like your investment advisory firm to help them with this particular option.
They would like to buy a second house (a 2 bedroom condo in Squaw Valley!), but they couldn’t possibly take on any more mortgage debt at the moment because they are still paying the mortgage on their only home. They hope that 1) they will go on paying their mortgage on their current house, 2) their salaries and bonuses will not change appreciably during the next 3-5 years, and 3) their stocks will appreciate enough to let them buy an investment home sometime in the future.
Before you talk about specific Bay Area companies, they would like you to clarify the following points for them. Please limit your answers to one (long) paragraph. They appreciated your comments about preferred stock and cash-dividend stocks but, because of their very high tax rate, they are not interested in stock income at the moment.
1. What does your firm recommend to them concerning options a) and b) above? Be specific about the amount you recommend Kim and Rick to invest in the stock portfolio and about companies and investment percentages in each (target 10 stocks).
2. Is it a good time to invest in the stock market for Kim and Rich?
3. Kim and Rich have a brokerage account with the Bank of America, and –as we noted earlier– they have a small amount of funds in the Vanguard 500 Index. Vanguard also offers a brokerage account. Should they look into other brokerage options such as full cost, discount, or electronic brokerage?
They would like to have the following from you: 1) a two-page summary with your recommendations and answers to the questions above, 2) a one-page summary on how and why the stocks were selected; 4) summary information on each of the companies, and 5) a one-page spreadsheet summary table with relevant indicators on the recommended companies.