The following are five case studies concerning how families or individuals might invest their savings.  Each has $5,000 to invest.  Each is considering only three alternatives: (1) a savings...

The following are five case studies concerning how families or individuals might invest their savings. 

Each has $5,000 to invest. 

Each is considering only three alternatives: (1) a savings account, (2) bonds, and (3) common stocks. 

For each case, identify which investment alternative(s) you would recommend.  Explain your choice.

  • Jerry earns $35,000 a year as a performer at comedy clubs. He is 26 years old and single.  He has $2,000 in a bank account and rents an apartment. He plans to use the $5,000 for emergencies and to help pay for living expenses.
  • Rachel earns $100,000 a year as a marketing and sales executive.  She is 38 years old and single. She is interested in saving for her eventual retirement.
  • Elaine is 25 years old and earns $25,000 as a teacher. She is engaged to be married, has $2,000 in savings, and rents an apartment. She wants to use the $5,000 to help her buy a house within the next few years.
  • George is an attorney and earns $75,000. He is married to Monica, who earns $60,000 as a director of human resources. They have two children, aged 6 and 8 years old.  They are making payments on their home and two cars. However, they both have excellent retirement plans and they have $20,000 in savings. They are interested is saving money for their children’s college educations.
  • Joey is a 70-year-old retired construction supervisor. He is married to Phoebe, who does volunteer work at a local hospital. Although they both collect Social Security, they also depend on their savings to pay for their living expenses.

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mwestwood | College Teacher | (Level 3) Distinguished Educator

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1. Jerry - As a comedy-club performer, Jerry does not seem to have much financial stability. Unless he is able to move into better venues, such as films or television sit-coms, or somewhere such as Las Vegas, where he might attain a longer-term contract, he probably should keep his $5,000.00 in a savings account for any emergencies or living expenses.

2. Rachel - Because she earns a substantial salary and has probably had the job for a while, Rachel has financial stability. Therefore, she could split her $5,000.00 between common stocks and bonds. (She can keep a close, daily watch on her investments, and, if necessary, switch her stocks to bonds, or keep some of the money in the bank for emergencies.)

3. Elaine - Unless Elaine marries and her husband earns considerably more than she, Elaine really has little to invest without worry. The safest move for Elaine, then, may be to place $2,000.00 to a savings account, and invest $3,000.00 in bonds. (Later, after she has been married for a while, there may be opportunities for her to purchase stocks.)

4. George - He and his wife, who are probably still in their thirties, obviously have the financial leeway to invest, and can afford to take some risks. So, they can put the $5000.00 into stocks. Keeping watch on the stock market overall and their particular stocks, they can switch their stocks if necessary into bonds.

5. Joey - Because Joey is 70 years old, and his wife has no income other than Social Security, he should take no risks as there is little possibility for him to recover his loss over time. Therefore, he should not purchase any stocks; instead he could place the $5,000.00 in the savings, or consider investing in bonds.

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