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Brad Piasecki is a successful 35 year old executive in the technology industry with a company that is growing rapidly. Piasecki has a pre-tax income of $150,000 per year, and manages to live well below his means. Piasecki is currently saving for both his retirement, which will take place in 30 years, as well as funding his daughter’s college education, which will begin in 15 years. Piasecki’s investment manager has determined that based on contributions to his portfolio, Piasecki requires at a minimum, an 8 percent annualized return on his investments in order to meet his goals. He also states that Piasecki should invest in a diversified stock and corporate bond portfolio that provides total return with an emphasis on capital gains. When his investment manager gives Piasecki his recommendations, Piasecki replies “I have seen too many of my colleagues buy risky stocks and have their portfolios wiped out. I only want to buy Treasury bonds for my portfolio.” Piasecki checks the yields on Treasury bonds, and sees that best yield he can obtain is 4.5 percent. Which of the following would be the best course of action for Piasecki’s investment manager? A. Invest 50 percent in Treasury bonds and 50 percent in the diversified stock/corporate bond portfolio to provide a balance between Piasecki’s risk tolerances and required return. B. Recommend investor education and a reassessment of portfolio objectives since the investor’s view is inconsistent with his goals and ability to take risk. C. Invest in the Treasury bonds since willingness to take risk always supersedes ability to take risk. |