Investment Assignment (Optional)
Your good friends, Dwight and Angela, are a happily married couple in their early 30s. They have a pair
young (toddler age), well-behaved boys with no intention of having more children. They currently live on
a lovely beet farm in the countryside, which Dwight inherited. Although they originally owned the farm
and house outright, they selflessly mortgaged it in order to help their old boss, Robert California, with
his charity to tutor gymnasts in Europe, Africa, and Asia. They currently owe about $220,000 on the
house, with an interest rate of 4.5% on a 15-year mortgage. They also have racked up about $20,000 of
credit card debt, money that was spent on karate classes, various weapons, cat food, and posters of
babies dressed as adults. The interest rate on their cards is 17%, with a minimum monthly payment of
$350. The rest of their living expenses are about $9,000 per month, with no savings.
Dwight works as an Assistant to the Regional Manager at a paper and office supply business, while
Angela works in accounting at the same company. Dwight currently earns about $90,000 while Angela
earns about $60,000. Angela probably will not advance much further in the company, but Dwight’s
enthusiasm and “dog-like obedience to authority” lead him to expect (reasonably) a minimum 5%
increase per year, with an extra 20% bump when he is promoted to Regional Manager in 5 years. After
his promotion, he probably will only get a 2% raise per year. Their farm is also a Bed and Breakfast and
agrotourism attraction which nets them about $10,000 per year.
Their financial goals are pretty straightforward. Although Dwight loves his work at the paper company,
both he and Angela would like to retire from the paper company in 25 years and focus their efforts on
the Bed and Breakfast/beet farm. You do not expect beet farm/B and B to ever make more than what it
currently is (after adjusting for inflation), and Dwight insists that you ignore any potential social security
benefits. They want to retire with a minimal shock to their consumption, and so came to you for
Your assignment is to create a comprehensive investment strategy for Dwight and Angela.
The first section should map their income, retirement account, mortgage, and debt up until they retire.
You should also make a recommendation on how much they should invest, put towards debt, or use to
play. Dwight and Angela want to enjoy life a little along the way, so try to figure out the minimum
amount they need to set aside to retire without a shock to their income. That being said, you want
account for the fact that maybe Dwight will not get that promotion or they will need to pay enormous
vet bills for one of Angela’s cats, etc.
I would recommend presenting something resembling an amortization table (annual, please) which
shows the value of their retirement account, mortgage, debt, and any other relevant accounts as time
passes. It should also include the monthly/annual amount paid into each account. While the
presentation is important, you need to explain why you are recommending the amount you are to them.
I should also mention here, that you will need to make some assumption about the return on their
retirement account, so you will probably need to write this section last.
In this section, you will provide 5 one-page descriptions of different investments you recommend.
Dwight is inherently skeptical, so you will need to convince him that they truly are good options for him
and Angela. These recommendations could include individual stocks, funds, bonds, treasuries, gold,
cash, or anything else available to a typical investor. However, once you make the recommendation,
these are the only products Dwight and Angela will invest in for the rest of their lives. The only thing that
will change is the weights that they place on each product, which you will later specify, and will also
affect the expected return to their retirement account.
What Dwight and I expect to see on these summaries is a brief description of the product and how it
works, reasonable expectation of returns, types and magnitudes of risk exposure, at least one graphic
representing pertinent information about the product (historical returns, volatility, histogram,
whatever), historical returns, the reason you are recommending it to Dwight and Angela, and the
product’s role as part of the total portfolio. Be professional, and I will immediately dock points if any
description is over one page. Consider breaking it into sections, almost like a brochure.
This is the final section in which you will explicitly describe the investment strategy. For each year, you
will specify the percentage of the retirement account dedicated to each of the 5 assets described in
section 2, and why. You will also comment on and attempt to quantify the amount of risk for each year
(if multiple years have the same portfolio weights, you can just say years 1-10 or something). I would
also recommend including some kind of a table showing the portfolio weights, expected returns, and
risk over time. Make it is clear and obvious as possible what you recommend and what will be
The first section should be 2-3 pages (the amortization table will probably take up most of a page by
itself), the second section should be exactly 5 pages, and the last section should be 2-4 pages. This
leaves a grand total of 9-12 pages. This is no small project, and it is not an easy project. I am offering this
assignment as a way to replace an exam worth 25% of your course grade, so I feel justified in asking you
to work hard and stretch yourself. Also, I will take the higher of your lowest exam grade or this
assignment, so there is no risk associated with doing it.
I am asking for a high level of professionalism in this report. Try to imagine you are an investment
advisor, and you will lose your clients if the information is unclear or poorly presented. If you turn in
your assignment by November 21, 2017, I will read through it, offer general feedback and return it by
November 30. You will then have a week to improve it, with the final due date being December 7, 2017.
You can try to turn it in after November 21 and ask for feedback, and if I have time, I will help you out.
Do NOT expect it. I will not accept this assignment or grade it after 11:59 pm December 7, 2017.
I have no problem with students exchanging general ideas, investment recommendations, or teaching
each other how to solve some of the problems associated with this assignment. However, each
assignment must be unique and demonstrate to me that you as an individual have mastered the subject