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The Financial Advisor Project 

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    My clients require $5,500 per month to afford a mortgage and private school tuition in addition to the lease payments on their shop. As the average entreneur in North Carolina makes $83,367, currently we can say the need of $5,500 is easy for my clients to afford (Salaries, n.d.). However, my clients are wanting to work less in the next 5 years. This will involve being in their business less and hiring a manager to manage the business while the business grows and becomes self sustainable. My Clients have several assets to consider when planning their investment strategy. For example, they have a savings account with $75,000, a $25,000 Certificate of Deposit (CD), their building fund is $100,000 so that they can purchase the building where they operate their business, and they have IRAs worth $40,000 each.

    Based on the information given, I have to make the assumption my clients are approximately 35 years of age. As stated in our text, a calculation that is useful to use in determining a portfolio of growth and income is (100%-Age) (STC, 2018). Being 35 years old, with a life expectancy of 85, if my clients want to slow down now, a portfolio of 50% growth-50% income will not give them enough growth to live within retirement. This figure can be adjusted based on the client’s risk tolerance. I recommend a 65% growth, 35% income portfolio as this would be more reasonable. Then, as my clients approach retirement age, possibly moving to a 60%-40%, and at age 70 a 50%-50%. With inflation rising, my clients have to stay ahead and with the low return on bond funds, which is less than current inflation, they will not meet their goals.

    Currently the Vanguard fund has a 5 year average return of 12.08% (VMRGX Performance History, 2018). As well, the income oriented bond fund has an average annual return of 5.4% (Vanguard portfolio allocation models, n.d.). I recommend my client invest $48,750 of their savings in the Vanguard growth fund. At 12.08% return, after 35 years with interest compounded, this investment would be worth $2,639,118.55. As well, I recommend my client invest $26,250 in Vanguards income fund. After 35 years, this fund will be $165,405.78 at 5.4% investment return. The income fund would offer help in balancing yield with income stability. It would also offer purchasing power and tax efficiency. As well, my clients could use their building fund to erase that debt.

    Since my clients are small business owners, I would recommend 3-6 months of cash reserve. This cash reserve may be even more since income could be unpredictable. For the cash reserve, a money-market fund is a possible choice, however, I personally do not prefer mortgage backed securities, as they currently have a low yield. 3,6, or 9 month cds (Certificate of Deposit) are yielding over 2.5% and have FDIC insurance, which should be a comfort for my client. As well, these cds can be fixed for a term, provide higher interest than a traditional savings account, and my client may receive interest in the form of a monthly check.

    When considering the cash for the building payoff, we currently have to consider the payoff a debt. However, if the payoff is within the next five years, I would recommend cds since it is a short term need, and this takes the market volatility out of the equation. As well, my client’s IRAs, valued at $40,000 each, should be invested more for growth and income. I would also recommend that they continue contributing to them. More so, I would encourage them to consider themselves as a creditor and to include paying into the IRA on a monthly basis, as a part of their monthly budget. A variable annuity would also allow them to grow invested in the market and provide a death benefit should something tragic happen sooner than they expect. A variable annuity would also provide my client a source of funds for their beneficiary.

    When considering college expenses for my client, optimally the client would have a college picked out and a cost estimate for the college of choice. With this information we could decide on how much they would need to save for college. This would be based on if they want to provide 100% of the college expense and how much they feel comfortable saving. In this situation with my client, I would suggest the 529 savings plan. These plans are treated similarly to Roth IRAs when it comes to taxation. My client’s investment could grow on a tax-deferred basis, and their future withdrawals will be 100% tax-free. As long as the proceeds are used for qualifying education expenses, withdrawals will be tax free no matter how much profit is made. If my client invests $825.00 into a 529 plan for the next 10 years, this will equate to $99,000 which should pay for 4 years at the average NC state university.

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