Bernie and Pam Britten are a young married couple beginning careers and establishing a household.?
Question:
The condominium - expected annual increase in market value = 5%.
Municipal bonds - expected annual yield = 5%.
High-yield corporate stocks - expected dividend yield = 8%.
Savings account in a commercial bank-expected annual yield = 3%.
High-growth common stocks - expected annual increase in market value = 10%; expected dividend yield = 0.
Calculate the after-tax yields on the foregoing investments, assuming the Brittens have a 28% marginal tax rate (based on Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003).
How would you recommend the Brittens invest their $40,000? ExplainPlease
Answer:
First, would suggest maxing out each partner's IRA contributions. I would also recommend at least a 20% downpayment on the condo in order to avoid PMI (private mortgage insurance). As both are young, would recommend a diversified but aggressive portfolio. First, establish the "rainy day" fund: 6 months of cash put into easily accessible but interest bearing vehicles (MMA, savings etc)
I would invest in several different mutual fund companies/accounts (spread the wealth around) focusing on those areas you see subject to near term appreciation.
As you age, reduce the volatility of the holdings by increasing amount invested in bonds, muni's, and large-cap funds.
well, since they are young and far away from retirement, put money in long term investment in high growth stocks.
choose from manage funds from the big trusted company, do not be greedy with the return.
Becareful, as many is TOO GOOD TOO BE TRUE, if the return is way above the return of maket. Double and triple check before put money in.
Choose big company, and the Brittens will be happy in long term.
since i'm not a fan of mortgages (death trap somehow became the norm) - I'd say why would they mortgage the $100,000 condo, when they already have 40% of the cost saved up?
With a 5% growth on the condo, their rates are likely to go up after the first few year locked-rate expires...they should invest the 40grand in several Fixed Income Funds and a mix high-yield socks (using position sizing) and give it a few years.
If they're newly married, what if they get divorced and have to split the condo in the middle of that mess? I think with the right combination of investments, and the right market mix with good diversity they can PURCHASE a condo in 6 years and have extra cash to vacation in Hawaii...
then again i'm a market optimist who distrusts mortgages.
Why don't you do your own homework!!
Put 20% down on the house, No PMI or second mortgages.
Municipal bonds - expected annual yield = 5%.
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Why would anyone at your age and income bracket invest in them?.
And I wouldn't count on a condo giving you 5% return in the foreseeable future.
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