Portfolio Management

Jerry W.¹

PRIVATE WEALTH CASE: DESIGNING AN INVESTMENT PLAN FOR JERRY W.

Background

Jerry W. has just sold her business based in Central New York State to a large retail chain for $25 million, resulting in two lump-sum after-tax payments of $2.5 million each (June 30 and December 31 of last year) and residual after-tax cash flows of $3.5 million in each of the next two years. A single $5 million payment in the form of publicly traded stock of the large retail chain was received in June of last year. The stock position has since increased in value by 25 percent. The latter two cash payments are conditional on the business meeting certain performance criteria.² Jerry will retain some business real estate (portion of a strip mall), which is expected to generate $200,000 (pretax) annually (paid monthly). She will remain with the company for one more year without pay to help manage the transition.

Jerry is a college graduate, 44 years old and single. Her parents are alive and she has one sibling, age 47, who is married with three children, ages 10–16. She has never had much money and lives modestly. She expects to need $2,000 (after-tax) a week to cover living expenses, excluding mortgage payments. Jerry has little investment experience, having reinvested company profits and held her financial assets (approximately $200,000 excluding sale of the business) in an interest-bearing checking account for personal and business spending. She has no retirement or insurance accounts. Although ...