Both a wife and her husband work in the airline industry. They are in their 40s

Question

Both a wife and her husband work in the airline industry. They are in their 40s and they have a high tax bracket and are concerned about their after tax rate of return. A meeting with their financial planner reveals they are primarily focused on long term capital gains and they will need at least a 9% to 11% average rate of return to meet their retirement goals. They desire a diversified portfolio and liquidity is not currently a major concern. If you had to choose from the list below which of the following asset allocations seems to best fit their situation?

Select one:

a. 10% money market; 40% long term bonds; 10% commodities; 40% high dividend paying stocks

b. 0% money market; 60% long term bonds; 40% stocks

c. 10% money market; 30% long term bonds; 10% commodities; 50% high dividend paying stocks

d. 5% money market; 30% long term bonds; 5% commodities; 60% stocks, most with low dividends and high growth prospects

Explanation / Answer

b. 0% money market; 60% long term bonds; 40% stocks

They are looking for long term (retirement goals) so no need to invest in money market and looking for diversified portfolio so it is better to diverse between bonds and stocks.

Bonds will give fixed return and capital will also protected so 60% investment in bonds is good idea for long term and apart from that the remaining 40% if they invest in stocks during long term they will expect return greater than 10%

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