Hey Chegg, I have a question that I can hope you can help me with. My partner an
ID: 2595815 • Letter: H
Question
Hey Chegg, I have a question that I can hope you can help me with.
My partner and I are working on a project for Finance. We are portfolio managers. We are given $1,000,000 to invest. We split the $1,000,000 in half. I invested all of my $500,000 in Dunkin Donuts stock and she invested all of her $500,000 in Home Depot stock. There was no specific reason as to why we chose these two companies. It really came down to preference. We recorded these 2 companies closing price every Friday for 13 weeks now, starting from September 22, 2017 through December 15, 2017. Both companies performed very well. The issue we are facing is figuring out what our goal or investment objective. Are we preserving the capital or capital appreciation or income or any other investment goal that you can think of. I think our goal is capital appreciation, but I can't really come up with a good explanation as to why.
Based on the information that we provided, could you tell us as to what our investment goal may be and why? The more details and explanation, it will help us explain it more clearly. Thanks in advance
Explanation / Answer
investment in mutual fund s depends upon the investors requirement and time duration & their needs. it depends upon the following factors 1)Which option is better for long term wealth creation?
2)How important is the tax saving argument for dividends? 3)Are you using the mutual fund to meet specific life goals?
4)Do you have regular liquidity requirements? 5)Do you have regular liquidity requirements? (In case of a growth plan, you will get a higher Loan to Value (LTV) and that will be beneficial for you in getting higher leverage eligibility.) • If you are looking at regular tax-free income, prefer a dividend option
• If you are looking to create wealth over the long run then opt for growth option
• If your mutual funds are meant for specific long term needs, stick to the growth option
• In case you want to leverage your mutual fund holdings, prefer a growth plan As a general rule, a growth plan is preferred as mutual funds are instruments to create wealth over the long term. Growth options follow the classical theory of compounding. The more you invest, the more you earn! The more your reinvest what you earn, the more wealth you create.