[Dnw55]

Cliff Swatner is single, 33, and owns a condominium in New York City worth $250,000. Cliff is an attorney and doing well financially. His income last year exceeded $90,000, and he has sufficient liquid assets to supplement his condominium and other tangible assets. Several years ago, Cliff began investing in stocks and bonds. He made his selections on the basis of articles he read describing good investment opportunities. Some have worked well for Cliff, but others have not. Cliff has never taken the time to evaluate his portfolio performance, but he feels it isn't very good. Cliff currently has about $90,000 invested. He has been dating a woman lately and hopes to marry her in three years, at which time he will need $20,000 for marriage expenses and a honeymoon. Cliff's only other objective is to accumulate funds for retirement, but he does not have a specific dollar target for this goal. Cliff feels that he has a moderate risk-tolerance level.

Explain some disadvantages of Cliff's current investment approach.
Construct a portfolio for Cliff, limiting your selections to 5 mutual funds (assume that he sells his current stock and bond holdings). Make sure your plan indicates specific dollar amounts for each portfolio component. Make sure your plan also explains your selections for each portfolio component. Visit an investment firm that deals in mutual funds, such as, Vanguard.com, AmericanCentury.com, Fidelity.com, etc. and select 5 mutual funds that will diversify Cliff’s portfolio. Record the fund name, ticker symbol, 5 year average annual returns (can use 3 year if 5 year is unavailable), the amount to be invested in each fund, and the amount returned in 3 years using the 5 years average annual return for the wedding.
Explain how Cliff should periodically rebalance his portfolio, indicating how frequently rebalancing should be done.

[morgaine300]

This isn't really accounting. It's also homework and we are not here to do your homework for you.

I assume you're in some class where you have been learning about this topic. (Sounds like some kind of personal finance class or something.) In which case I would hope they have been teaching you stuff about future plans and how to balance a portfolio, along with what diversifying means.

I'm not sure what you mean by "how this should be done." I'm not sure if you just don't understand the instructions or whether you don't know how to go about doing it. Start with how much money he already has, because that's what he's got to work with. Also consider he needs 20,000 in 3 years. It's not very realistic, but just pretend that he only needs the 20,000 in 3 years and everything else is retirement. They probably threw that wedding in there cause they want you to consider short-term goals as well. (The class might be involving time value of money as well.)

After that it's research time. You can go to any of the sites mentioned, as well as T Rowe Price, Janus, Dodge & Cox, even ETrade and Scottrade and fool.com. Or just googling something like "investment basics" and see what you find. Any of those places will talk about investing strategies. They'll talk about short-term versus long-term, and for long-term they'll give ideas about ways to split it up and diversify. (Like how much in stocks versus bonds.) Remember they've given Cliff a moderate risk so pay attention to that. What you will find will depend on where you go. (I would have thought they'd have covered that in class!)

Look at the short-term and the retirement goals separately. If it were me, I'd find something for the short-term one, use the average as a rate and back it into today's value. That's how much you need for the wedding.

Once you have a general idea of how to split, you should be able to find something that'll give an idea what specific types of things to put it in. (For example, 40% large cap, 10% small cap, 10% foreign, etc.) Try "asset allocation" in their search box. If it's any good it'll take risk level into consideration. Depending on where you're at, it might even give you suggestions of their specific funds to use, meaning they've basically answered it for you. (Again, I would have thought the class would over this.)

Brokerages will also have the track record for their own funds. That's where you'll find stuff like the 5-year records. They should have a 5-year average so that you don't have to go trying to calculate it. (As a note, if it only has a 3 year average and not 5, I'd skip it anyway. )

Give it a whirl and see how far you get. You can always come back with what you've come up with thus far and get some more tips. Just do keep in mind that it's your assignment and you need to do some work -- they want you to learn, not just get answers from someone else.