Question

In the movie “I Don't Know How She Does It” released in 2011, Kate Reddy (Sarah Jessica Parker) is working as a fund manager. She proposes an individual investor retirement fund where she aims to make it possible for people to supplement their Social Security so they can actually retire. She suggests picking the stocks with a big dividend yield, where she targets a few industries in which she really sees the dividends multiplying.

I would like you to build a fund. You are welcomed to choose the following:

 your aim (for instance, the aim can be building an individual investor retirement fund to make it possible for people to supplement their Social Security so they can actually retire or the aim can be lowering the level of diversifiable risk that individual investors are exposed to during crises times such as COVID-19 etc.),

 your asset types (for instance, stocks, bonds, cryptocurrencies, foreign currencies, commodities, cash etc.),

 your criteria to choose from the asset types (for instance, picking the stocks with a big dividend yield),

 any other feature you would like to add on (for instance, insurance).

Please also explain your reasoning behind your choices. You are not expected to provide a detailed quantitative analysis in this task. You may build your idea on the news articles, others opinion pieces, reports etc. Please cite the resources you used.

Answer 1

Lets start with buliding a fund

1. Aim: Wealth Creation

2. Asset Types: I would suggest inveating in multiple asset types to diversify your risk, but with the passing of time the proportion of investment in each asset type changes depending upon the risk apetite.

a. Stocks

b. Treasury bills and Debt securities

c. Commodity- gold

d. Cash for cases where you nedd some emergency cash in hand

The proprtion of these asset type in the portfolio will change with the change in Age bracket of a person

Between Age 25 to 35- I would assume a person has maximum risk apetite in this bracket, so the proportion would be

Stocks-45%, Debt Securities ot T Bills-20%, Gold-20%, cash-15%(for emergency purposes)

Age Bracket 35-45

Stocks-25% debt Securities or T Bills-40%, Gold-30%, cash 5%

Age bracket 45-55(retirement)

Stocks- 5%, debt securities or T Bills- 50%, gold-40%, cash 5%

3. Criteria for choosing from the Asset types

Stocks: High dividend, Blue chip or mid cap having 0 debt on their balance sheet. Consistent performers and occupy a relatively large market share.

Debt Securities or Tbills: Corporates bonds of AAA or AA+ rated companies. Govt bonds ensuring a fixed passive income month on month

Gold- AMong thje commodity I chose gold because it is the safe heaven whenever a recession hits or a crisis hits. People invest in gold during crisis period and this it acts as a great diversifying value addition component of your portfolio.

Cash- Always maintain a certain amount of cash in hand for emergency puproses. No one can of sure of the emergency and at that time instead of discontinuing the long term invested assets one can go with cash in hand.

4. Investing in Term life insurance and medical insurance plans as it would secure you from unncessary chaos during emergency situations plus would also provide you with tax benefits on your taxable income.