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Ismael Hamidaddin 200901599
Case 1
Policy Statement for Mr. Collingwood
Annual salary would be $120,000 minus the $36,000 would equal to $84,000. His current
bank balance is $300,000. Therefore the sum of his savings for 20 years would equal to
$1,980,000 ($300,000 + ($84,000*20 years) at the end of his career.
Asset allocation is balancing risk and reward by diversifying a portfolio's assets
according to Mr. Collingwood’s goals, risk tolerance and investment horizon. The objective of
this strategy is to achieve the highest possible return.
Goals: Accumulate a college and retirement fund within 20 years for his wife and child (also
consider the unborn child in the span of the next 3 years), it is necessary to have a well
diversified portfolio of high-yield, in a scale of moderate to high risk securities.
Investment horizon: 20 years
Risk tolerance: Average
Mr. Collingwood should immediately begin to invest his current balance as he has no
essential need to leave his money idle. By taking time value of money into consideration he
would be losing money by leaving his money therefore, instant action is required to avoid any
further delay to reaching his required amount. His earnings are more than his monthly expenses.
He owns a home and life insurance. Liquidity is not one of the objectives of the investment due
to the fact that is a long-term investment.
The optimum allocation suitable for Mr. Collingwood‘s aim would be as follows:
Assets
Weight
Asset Class
Large Company Common Stocks
30%
Equity
Small-Capitalization Common Stocks
40%
Equity
Long-term US Government Bonds
10%
Fixed return
Long-term Corporate Bonds
15%
Fixed return
Intermediate-term US Government Bonds
5%
Fixed return
For Mr. Collingwood to reach his goal diversification would be to invest 70% of in highyield stocks and 30% of the funds in secure bonds. By doing this he would be able to profit from
this portfolio and reinvest the proceeds in new assets.