John Gilbert Harvard Case Solution & Analysis

John Gilbert Case Solution

The prevailing tax rate has used for calculating total tax expense for the year. The tax expense has been calculated separately for Mr. John and his wife. As, they decided to distribute western pension fund among themselves by 50/50 percent, this distribution has no effect on the tax expense,because it is fully taxable. Moreover, Canadian stocks are depreciated on low rates as compared to market rate. Thus, the total tax expense for the year 2013 is $9,073. (See appendix 5 for total tax expense).

Risks Analysis

There are many risks associated with the investment of Mr. and Mrs. Gilbert. They have to consider the all three options and the risk associated with them. The investment in debt securities has many risks associated with it. John noticed that bonds have shown a good increase in the market as compared to stocks in the last 10 years that is because of the decrease in the interest rates that leads to the increase in prices. Therefore, the investment in bonds has a crucial risk associated with it that is increase in interests which lowers the prices of bonds hence creating a low yielding investment.

While the option of investing in the US securities also has greater risks because the US dollar has fallen steadily in the past years against the Canadian dollar which is why the US securities does not provide a good return while Mr. Gilbert has all his expenditures in Canadian dollars.

The investment in stocks; the stocks are also showing a decreasing trend. They can invest in Exchange Traded Fund or can get a reverse mortgage on their condominium and cottage for their lifetime and the principal amount will due on their death or at the time of leaving the condo or cottage.

Investment Plan

Western University Fund invests in three different tiers therefore professor Gilbert has three options to choose among them for investing his pension fund. The first tier is comprised of balanced income and balanced growth that provides 4.69% return in long term. While the second tier is comprised of diversified bonds and equity funds that gives the return of 3.39% in long term. On the other hand, the third tier is a mix of different securities and investment options,which is why it has sound risk aversion ability that will generate 5.93% income in the long term. Hence the third tier is most suitable for the investment.

Conclusion

Professor John Gilbert was working in Western University of London; in 2012 he was going in the 65^th year of his life. Therefore, he has announced his retirement from the university, and he was invited by the HR department to discuss his plan for investing his pension fund, but he was wondering that what he should do with his pension fund. Then, he estimated his expenditures that what amount he would be required to have for meeting his expenses after his retirement, and analyzed all the investment options thoroughly. They concluded that they can meet their expenses through their already held securities income and by pension and old age benefit and any deficiency could be met by using savings account balance. Therefore, he decided to invest his retirement fund and after giving due diligence to the risks and returns of the investment options he finally decide to invest in the third tier of the Western University Fund, which generates 5.93% return in the long term.

Appendices

Appendix: 1(Budgeted Expenditures 2013)

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