INVESTING IN MUTUAL FUNDS
Jamie Lee and Ross did several weeks’ worth of research trying to choose the right stock to invest in. After all, the $50,000 inheritance was a lot of money and they wanted to make the most informed investment choices they could. They discovered, by doing their homework, the various companies’ stocks that they were looking to invest in did not seem like they were going to have the promising future that Jamie Lee and Ross were hoping for. They were aware that they were taking a chance with any investment, but they were both nervous about "putting all of their eggs" in stocks and wanted to be more confident in making their investment choices. But how could they be more assured?
They decided to speak to their professional financial planner, who suggested that investing in mutual funds may be the way to lessen the risk by joining a pool of other investors in a variety, or bundle, of securities chosen by a professional mutual fund manager. This way, Jamie Lee and Ross could lessen the pressure of choosing the right company and minimize the chances of losing all of their investment money by diversifying their portfolio.
A mutual fund sounded like the sensible investment choice for them, but which mutual fund would best match their investment strategy? Jamie Lee and Ross are in their mid-40s and well on their way to reaching their long-term investment goals, as they committed to reaching their objectives early in their marriage. They set their sights on having the triplets graduate from college debt-free and saving enough to purchase a beach house when they retire. They are looking for a mutual fund that will provide investment income while maintaining the moderate risk investment path that they are on, as they have some time to go before retirement.
Current Financial Situation
Assets (Jamie Lee and Ross combined):
Checking account, $7,500
Savings account, $83,000 (including the $50,000 inheritance)
Emergency fund savings account, $45,000
House, $410,000
IRA balance, $78,000
Life insurance cash value, $110,000
Investments (stocks, bonds), $230,000
Cars, $18,500 (Jamie Lee) and $24,000 (Ross)
Liabilities (Jamie Lee and Ross combined):
Mortgage balance, $73,000
Student loan balance, $0
Credit card balance, $0
Car loans, $0
Income:
Jamie Lee, $45,000 gross income ($31,500 net income after taxes)
Ross, $135,000 gross income ($97,200 net income after taxes)
Monthly Expenses
Mortgage, $1,225
Property taxes, $500
Homeowner’s insurance, $300
IRA contribution, $300
Utilities, $250
Food, $600
Gas/Maintenance, $275
Entertainment, $300
Life insurance, $375
Questions
1.) It has been suggested by Jamie Lee and Ross’s professional financial planner that they perform a financial checkup as the first step in investing in mutual funds, even though they are investing $50,000 that was inherited from Ross’s late uncle’s estate. Is it a good time to invest the inheritance, or should Jamie Lee and Ross use the inheritance to pay down their home mortgage or increase the money they have in savings?
