Investment concepts and applications

Finance

For my portfolio, obviously there are certain stipulations that limit my choices, namely the $10,000, which is a pretty big constraint. I thought I would start with the shares. I went with Brocade Communication Systems, which trades as BRCD on Nasdaq. This company makes and sells networking hardware and storage solutions. The current market price is $9.72 (MSN Moneycentral, 2014). I will be buying 200 shares, which gives us a price of $1,944.

The option is going to be call options on Starbucks. The expiry will be October 18, 2014. The strike price is $80, which has an ask of $1.25. The current price of Starbucks is $70.15 so the time value is presently $1.25 (MSN Moneycentral, 2014). The total cost of this is going to be 1.25 * 500 = $625.

The time horizon of this portfolio is long, since this is for my retirement. Therefore I can undertake a fair amount of risk. That will be reflected in my mutual fund selection. I will select the Fidelity Growth Company fund, which is growth-oriented equity, and gets a five-star rating from Morningstar.

With respect to the corporate bond, I went for something that would pay me a coupon in the next six weeks -- I understand that is built into the price but I figured it would feel good. I took $3,000 in the AT&T 15-May-2038 maturity, which pays a coupon of 6.4% (of which I will receive 3.2% on May 15th). This is still investment grade, and I have no real reason to fear that AT&T is going to default, despite its A rating. The current price on this bond is 118.66. I want 25% in bonds for this portfolio, so I will buy

All told the portfolio shapes up as follows:

Portfolio

P

Cost

Current P

Value

Shares

Brocade

$9.72

$1,944.00

9.72

1944

Options

SBUX

5

1.25

1.25

Bond

AT&T

2000

Mut Fund

Fidelity

40

Cash

CD

1

$283.80

1

$10,000

The portfolio was designed around the principle of long-term growth, emphasizing equity. Only 2% is in cash, with another 24% in a corporate bond. The remainder of the portfolio is in growth equities, or options. The leverage power of the option could be the determining factor of the success or failure of this portfolio, despite the small size that it has now.