Question

Steve and Jane Mitchell, both 35 years old, met and married when they were graduate students at the Fox School of Business. They each embarked on promising, demanding and successful executive careers in money management after grad school. Their goal is to retire at age 60, downsize to a smaller home, and travel. They are now well established at their firms, have a son and are expecting their second child, a daughter, in 4 months. They hope both children will follow their tracks and go to college for an undergraduate and graduate degree. They have not yet begun to save for their son's education, but know that it's important. They anticipate supporting their children throughout college. Assume that the Mitchells will each live to age 85.

(A) Compare and contrast the Mitchells' investment time horizons prior to and immediately subsequent to the birth of each of their children.
(B) Discuss the financial challenges that having two children will place upon their retirement objectives and discuss the approaches to meeting those challenges, including investing more aggressively.

Answer 1

Before the birth of each child, the Mitchells' investment time horizons differ. Having two children will place financial challenges on their retirement objectives.

Step-by-step explanation:

Before the birth of each child, Steve and Jane Mitchell's investment time horizons will differ. Prior to the birth of their first child, their investment time horizon would be long-term, as they have many years until retirement and can afford to invest more aggressively. However, immediately subsequent to the birth of their first child, their investment time horizon may shrink as they need to allocate funds for their child's education and other immediate expenses.

Having two children will place financial challenges on the Mitchells' retirement objectives. They will need to save and invest more to cover the costs of supporting two children through college, as well as their own retirement. One approach to meeting these challenges is for the Mitchells to invest more aggressively during their earlier years to maximize growth. This means they may take on higher risks and allocate more of their investments in stocks or other higher-yield assets. However, they should also consider diversifying their investments to mitigate risks.