the bruckners asset allocation you have new clients 257062

1. How much is allocated to each class of assets?

2. Based on the historical returns in Exhibit 10.2, how much will be in each account when the girls approach college age ten years from now?

3. Since historical returns are averages, how much will be in each account assuming that the worst-and best-case scenarios based on Exhibit 10.4 were to occur? (Be careful to select the appropriate time horizon for the comparisons.)

4. What would have been the impact on the terminal amounts in Question 3 if the allocation had been 40 percent large cap companies and 60 percent small cap companies?

5. Given the values in Question 3, what is the portfolio’s asset allocation after ten years have passed? What steps should be taken?

6. If the Bruckners do not need the funds to finance their daughters’ college education, how much will be in each account when they approach retirement in their mid-60s under the original allocation?

7. Based on the rate of inflation in Exhibit 10.2, goods and services costing $100 will cost how much at their retirement? How much annual income is necessary to maintain their standard of living?

8. If their combined life expectancy is 15 years at retirement, can they maintain their standard of living if their funds as a whole earn 7 percent after they retire? What is the future rate of inflation assumed in your answer to the previous question? Is that assumption reasonable?

9. Based on the above answers, what are some suggested courses of actions the Bruckners should consider taking?


You have new clients, Erik and Senta Bruckner. They are in their mid-30s and have two children, Stella and Chloe, ages 6 and 8. The Bruckners’ primary financial objective is to provide for their children’s college education. Their secondary objective is to plan for retirement. They own a home with a mortgage and have total family income of $100,000. Senta’s employer provides medical insurance and life insurance. She participates in her employer’s 401(k) retirement plan and currently has $40,000 in the plan. The funds are invested in her company’s stock. Erik is self-employed and works from their home. He has not established a retirement plan. After deducting the amount of the mortgage, the family has total assets of $200,000 available for investing in addition to the $40,000 in the retirement account.

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