1. Comment on each of the following elements of Brad’s plan:

a. Level of diversification

b. View on bonds and not including them in his portfolio

c. View on mutual funds and/or ETFs, and not including them in his portfolio

d. Trading online

e. Source of information (“hot tips”)

2. Given Brad’s lack of knowledge of investing and his limited time to learn or do research, what might be the best option for Brad to pursue and still get the benefit of the potential growth in the internet sector?

3. What factors will influence Brad’s asset allocation? Based on these factors, what might be a suitable sample portfolio for Brad?

4. How would your answer to the sample portfolio part of Question 3 be affected if Brad were 

a. 50 years old?

b. 70 years old?

5. Explain to Brad why misleading financial statements may be more common than he believes and why misleading financial statements can negatively affect a stock’s price. 

Use the worksheets available on MyLab Finance to complete this case.

Between watching a financial news network on cable, reading articles in some business magazines, and listening to a co-worker recount his story of doubling his portfolio in six months, Brad is now convinced that his financial future lies in the stock market. His co-worker’s windfall was in internet stocks, so Brad has focused his modest portfolio on a highly speculative internet stock. Although owning one stock does not provide adequate diversification, Brad believes that this stock will maximize his growth potential.

He has heard that it might be a good idea to buy bonds and/or mutual funds for diversification purposes, and recently, a friend suggested that Brad consider purchasing exchange traded funds (ETFs) instead of mutual funds. Brad is unfamiliar with these investments. Besides, he finds investments like bonds, mutual funds, or similar types of investments boring and their returns too low.

Although ETFs are unfamiliar to Brad, he did read an article on how trading online can increase his return, and he’s interested in your opinion. Brad admits that he has virtually no knowledge of investing or time to do research, but a broker gives him many “hot tips.” He believes that is all he really needs. As such, Brad thinks that ETFs may not be the best option for him. 

Brad has heard about misleading financial statements issued by some firms, but believes that even if companies misstate their financial condition, this will not affect their stock price.

Brad would like to hear what you think of his plan