Robinson Case Study Solution

1381 Words 6 Pages
The Robinson’s are a married couple that is planning of retiring in four years. Their taxable investment portfolio is invested 25% equity and 75% fixed income. They have not participated in any defined contribution plan and neither is eligible for a defined benefit plan. The Robinsons have a combined after-tax salary of $100,000. The couple has been able to meet expenses and keep up their home; however, they have not been able to travel to any extent. The Robinsons desire to maintain their current standard of living and expand it with world travel. They will need $100,000 per year in addition to any social security they may receive. The Robinson’s home is worth $250,000 and is mortgage-free. Their new financial advisor has made suggestions …show more content…
Risk willingness is defined as the amount of risk the client wants to take. Before coming to a conclusion about the Robinsons’ risk willingness, The Robinson’s age, current portfolio status, and time window of portfolio accumulation have direct influences influence the Robinson’s perspective on risk. Typically, the older the client, the more passive investment strategy is utilized which results in low risk willingness. The case states that the Robinsons currently have a portfolio mix of 25% equity and 75% fixed income. The current state of the couple’s portfolio reflects low risk willingness. However, the most important aspect of the Robinson’s risk willingness is the time window for the portfolio to produce optimal capital. The longer the times horizon, generally the more one’s portfolio is devoted to growth. Conversely, the shorter times frame, the more certain the Robinsons ' advisors must be that funds will be available when the couple needs them. The time window for the Robinsons is 4 years. Evidently, the Robinsons have a time window that forces them to make sure the capital is raised therefore increasing their risk willingness. Overall, our team has accessed the Robinsons to have medium level risk …show more content…
Passive investing generally aims to keep face with the market, while active investment aims to beat the market with aggressive alpha. Our team wants the Robinson’s choice to reflect their risk tolerance. As a team, we suggest that the Robinson’s have a blend of passive and aggressive funds. We suggest that the Robinson’s keep 30% of their funds within Vanguard to produce a financial safety net. This 30% will be passively managed in the Vanguard account. The other 70% will be actively managed within the FSF account, to ensure that the Robinsons produce the targeted amount of income. As a team we kept in mind that the Robinsons not only wish to maintain their current lifestyle, but travel as well. With travel being a substantial part of their goals, the couple’s portfolio must reach a high level of capital within the time constraints.
The couple’s current financial advisors recommended that the couple move their funds from an extended market fund to a small-mid cap fund in order to help move closer to the amount needed for retirement. Market capitalization is defined as the worth of a company in a public market. In other words, the Robinsons have fund invested in companies with large public markets. Large cap funds are consists of massive and well known blue chip stocks. These usually deliver reasonably predictable earnings on a quarterly basis.

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