Portfolio CHECK-UP

September 16, 2008
Thomas R. Kosky, MBA

Physician's Money Digest, February28 2003, Volume 10, Issue 4

Name: Bill Williams, MD

Residence:North Central Florida

Age:65

Family:Married, 2 grown children

Years in practice:35

Type of practice:Pediatrics

Annual income:$300,000

Savings: Approximately $3.1 million

Financial concern:Dr. Williams is seeking to retire mid-summer 2003.With the recent 3-year stock market declines, Dr. Williams, like most otherinvestors, has lost a considerable amount of money, and currently has totalfinancial assets of approximately $3 million. Because he has been hit hard bythe stock market and wishes to retire in the next few months, he wants toavoid stock market volatility, yet he must earn 6% to 7% annually on his longterminvestments to meet his retirement objectives. However, with the sluggisheconomy and a very low interest rate environment, instruments like CDs,money market accounts, and other very safe and very liquid investments areyielding essentially no return. What can Dr. Williams do to be safe and earn ahigher rate of return?

The Finance Professor's Solution

Dr. Williams may want to consider the following investments: preferredequities, which are "hybrid" securities, having both bond and stock characteristics;and high-quality, short-term bonds (ie, fixed-income investments).

Preferred equities, depending on the issuer's credit risk, of issues rated byS&P/Moody's to be at least investment grade are currently yielding in therange of 6.5% to 7.5%. The lowest investment-grade rating is BBB by S&P.These instruments have little volatility in price movement. Monies investedin bonds should also be at least investment grade (BBB) or better, and shortin duration and maturity (less than a 3- to 5-year maturity) to protectagainst the risk of increasing interest rates (ie, interest rate risk). Such bondinvestments should generate a return in the neighborhood of 5% to 7%annually with minimal volatility.

Such a portfolio will allow Dr. Williams to generate his required 6% returnwithout exposing him to the volatility inherent in the stock market.

For more information, call Mr. Kosky at 800-953-5508or visit www.assetplanning.net.

Thomas R. Koskyand his partner, Harris L. Kerker, are principals of the

Asset Planning Group in Miami, Fla, specializing in investment, retirement,

and estate planning. Mr. Kosky teaches corporate finance in the

Saturday Executive and Health Care Executive MBA Programs at the

University of Miami.