Homework 1: Investment Personality Type Matrix - Susanne Cas

Homework 1investment Personality Type Matrix Susanne Casemake Decis

Classify Suzanne investment personality type. Draft the IPS (Simple) for Suzanne. Select and justify one of the following portfolios for Suzanne. Allocate A Allocate B Allocate C Allocate D Asset Class US stocks - large cap 50% 30% 15% 10% US stocks - small cap 10% 20% 10% International developed market equities 5% 5% 5% International emerging market equities 5% 5% 20% US corporate bonds 10% 25% 10% 50% US Treasury bonds 5% 20% Real estate 15% VC 20% 20% Cash 10% 5% 20% Total expected return 12% 9% 9.5% 5% Current yield 2% 3% 4% 5%

Paper For Above instruction

Suzanne's investment personality type can be classified based on her characteristics, financial situation, and investment preferences provided in the scenario. Her willingness to assume some risk for travel achievements, her diversified portfolio, and her active planning suggest that she might fit best within the Individualist Investors category. These investors are self-confident, question analyst recommendations, and prefer making independent decisions, aligning with Suzanne’s proactive approach and her confidence in managing her finances. The fact that she is willing to take some risks for her travel goal further supports this classification, as these investors are comfortable with a moderate risk level to pursue higher returns.

Drafting a simple Investment Policy Statement (IPS) for Suzanne involves articulating her financial goals, risk tolerance, time horizon, and investment constraints. Based on her profile, her primary goals include maintaining her principal to support her son's family, funding her travel, and supporting her philanthropic interests. Her time horizon appears to be medium to long-term, given her age and upcoming travel plans. Considering her moderate risk appetite, the IPS should reflect a balanced approach.

Investment Policy Statement for Suzanne

  • Goals: To preserve principal for her gift fund for the museum, provide $60,000 annually adjusted for 3% inflation, support her son and his family with $30,000 annually, and accumulate sufficient capital for her two-month trip costing $50,000.
  • Risk Tolerance: Moderate, willing to accept some risk to achieve higher returns needed for her travel and supporting her family.
  • Time Horizon: Approximately 10–15 years, considering her age and financial goals.
  • Investment Constraints: Moderate liquidity needs, preference for diversified investments, and a commitment to maintaining the principal for her philanthropic gift fund.

Given her goals and risk profile, a balanced portfolio that blends growth and income assets is appropriate. Specifically, Allocation C is justified as it offers an optimal mix with total expected return of 9.5%, a reasonable risk profile, and a diversified asset class allocation. It provides a balance between equities, bonds, and real estate, aligning with Suzanne’s moderate risk tolerance and need for growth to meet her future expenses and travel plans.

Hence, the selected portfolio for Suzanne is Allocation C: with allocations in US stocks (large and small cap), international equities, bonds, and real estate, prioritizing growth while maintaining risk controls. It offers an expected return of 9.5%, aligning with her need for some growth but not overly aggressive exposure that could jeopardize her principal.

References

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