For the past five years, Ariya Juggernaut, age 42, has worked as a senior Web designer for Mine craft, a company in Stockholm, Sweden, although she works online from northern California where there are plenty of hills, forests, lakes, and golf courses. She earns $92,000 annually. From her salary, Ariya contributes $460 per month to her 401(k) retirement account, 100 percent matched by her employer for a total of $920 going into her retirement fund, which she totally invests in her employer's company's stock. Ariya is divorced and has custody of her three children, ages 14, 6, and 4. Her ex-husband pays $1500 per month in child support. Ariay and her former spouse contributes $3000 each annually to a college fund for their children. Over this past 15 years, Ariya has built a $200,000 portfilio of investments beyond what she has in her 401(k) plan after starting by investing the proceeds of a $100,00 life insurance policy following the death of her first husband.

Currently, her portfolio is allocated 40 percent into preferred stocks (paying 4.5 percent); 30 percent into cyclical, blue-chip common stocks (P/E ratio of 14); 10 percent into Treasury bonds (paying 2.99 percent); 10 percent into municipal bonds(paying 1.7 percent); and 10 percent into AA corporate bonds (paying 5.6 percent). Ariya's total return in recent years has been about 7 percent annually. Her investment goals are to have sufficient cash to pay for her children's education and to retire in about 18 years.

What do you recommend to Ariya on the subject of stocks and bonds regarding:

a. Investing for retirement in 18 years?

b. Owning blue-chip common stocks and preferred stocks rather than other common stocks given Ariya's investment time horizon?

Answer rating: 100% (QA)

Over 18 years bonds are safer because they bring about lower retur... View the full answer