Asset Allocation: The Muellers Case

Peter and Andrea Mueller, U.S. residents, are reviewing their financial plan. The Mueller both age 53, have one daughter, age 18. With their combined aftertax salaries totaling $100,000 a year, they are able to meet their living expenses and save $25,000 after tax annually. They expect little change in either their incomes or expenses on an inflation-adjusted basis other than the addition of their daughter's college expenses. Their only long-term financial goal is to provide for themselves and for their daughter's education. The Muellers both wish to retire in ten years.

Their daughter, a talented musician, is now entering an exclusive fiveyear college program. This program requires a $50,000 contribution, payable now, to the college's endowment fund. Thereafter, her tuition and living expenses, to be paid entirely by the Mueller are estimated at $40,000 annually.

The Mueller's personal investments total $600,000, and they plan to continue to manage the portfolio themselves. They prefer "conservative growth investments with minimum volatility." Onethird of their portfolio is in the stock of Andrea's employer, a public traded technology firm with a highly uncertain future. The shares have a very lowcost basis for tax purposes. The Muellers, currently taxed at 30 percent on income and 20 percent on net realized capital gains, have accumulated losses from past unsuccessful investments that can be used to fully offset $100,000 of future realized gains.

In ten years, Peter will receive a distribution from a family trust. His portion is now $1M and is expected to grow prior to the distribution. Peter receives no income from the trust and has no influence over, or responsibility for, its management. The Muellers know that these funds will change their financial situation materially but have excluded the trust from their financial planning.

II. ASSET ALLOCATION DECISIONS

SUGGESTED ASSET ALLOCATION: 1^st 5 Year

	Range (%)	Current Target (%)
Cash or Money Market
US Fixed Income (Consider Municipal Bonds)
Foreign Fixed Income
US Stocks Large caps
US Stocks Small caps
Foreign Stocks
Real Estate
Other

Justifying Comments:

SUGGESTED ASSET ALLOCATION: After 5 Year

	Range (%)	Current Target (%)
Cash or Money Market
US Fixed Income (Consider Municipal Bonds)
Foreign Fixed Income
US Stocks Large caps
US Stocks Small caps
Foreign Stocks
Real Estate
Other

Justifying Comments: