Ray Sutton has worked in the management services division of Strategic Consultants for the past 5 years. He currently earns an annual salary of about $95,000. At 33, he’s still a bachelor and has accumulated about $60,000 in savings over the past several years. He keeps his savings in a money market account, where it earns about 1% interest. Ray wants to get “a bigger bang for his buck” and so has considered withdrawing $50,000 from his money market account and investing it in the stock market. He feels that such an investment can easily earn more than 10 – 12%. Cheryl Dodd, a close friend, suggests that he invest in mutual fund shares. Ray has approached you, his broker, for advice.

a). Explain to Ray the key reasons for purchasing mutual fund shares instead of individual stocks.

b). Are Ray’s expectations realistic for the stock market? If so, what types of mutual funds/investments would you recommend to Ray? If not, what should he invest in to get a 10-12% or better return?

c). Is there any other information that you would want to know before making any recommendations? If so, discuss those items and how that would affect your advice.

Answer rating: 100% (QA)

1 Investing in Mutual fund is less risky than investing in an individual stock because investing in ... View the full answer