Question

This client has just been informed that he has been promoted and will be earning $190,000 per year instead of $140,000 per year. The customer intends to use this extra income to fund his 13-year old child's college education. Based on the customer's existing asset mix, the best recommendation would be for the customer to invest the extra $50,000 per year into a(n):

Answer 1

Complete question:

Customer Name: John Doe

Age: 41

Marital Status: Married

Dependents: 1 Child, Age 13

Occupation: Engineer

Household Income: $140,000

Net Worth: $240,000 (excluding residence)

Own Home: Yes

Investment Objectives: Total Return / Tax Advantaged

Investment Experience: 12 years

Current Portfolio Composition: 8% Common Stocks

62% Corporate Bonds

30% Money Market Fund

This client has just been informed that he has been promoted and will be earning $190,000 per year instead of $140,000 per year. The customer intends to use this extra income to fund his 13-year old child's college education. Based on the customer's existing asset mix, the best recommendation would be for the customer to invest the extra $50,000 per year into a(n):

A. money market fund

B. income fund

C. growth fund

D. inflation protected fund

Answer:

C.) Growth fund

Explanation: With the help of a growth fund which the client may be able to achieve his aim, the growth fund is mainly fo used on multiplication and expansion of investment which aid the rapid increase in invested capital. With a growth fund, rather than being paid dividends on investment, they are added to the capital and reinvested which will aid the capital outlay of the investor within the specified period.

Also, previous investment in equities is significantly low at 8%, so investing the pay rise in a growth fund is a very good idea.