Investment Portfolio Sid, a widower of 45, has two adult children who both have

Question

Investment Portfolio Sid, a widower of 45, has two adult children who both have good full-time jobs. He owns a prosperous hardware store and recently paid off the mortgage on his house. He earns a good salary and has few expenses. Several years ago, he began to invest for his retirement: he owns a self-directed RRSP and a diversified portfolio of common stocks and bonds worth over$150 000. Recently he sold some shares in a high tech stock and made a capital gain of $25 000. Yesterday, his broker called with some suggestions for this money. Sid told him that income, capital gains, and security of the principal are his main priorities. He also said that liquidity and inflation protection are far less important. If he has another capital gain, he wants to invest in some mining stock and a second mortgage. (a) Examine Sid

Explanation / Answer

1) Sids investment objectives have high risk and lack liquidity which is the necessary for everyone. It not good for him to have high risk when his age is 45.

2) His state objectives are no liquidity and no inflation protection but protection of capital. His plans are to invest in mining stock and a second mortgage. He also told that capital protection is important. Its not normal to have capital protection and not inflation protection. He also tries to invest in mining stocks which have very high risk. he could have invested in first go without waiting for the capital gains

3) Yes its common to find such inconsistencies as greed is the main motivator of stock markets. He wants the cake and have it oo.

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