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Marcia and Phil Helm, a couple in their thirties, have been married for several years. They have no children, and each has a professional career. Marcia is a trainee for a management position at a large department store, and Phil is an engineer at an electronics firm. Their careers have promising futures, but neither has exceptionally good income protection in the event of a layoff. The Helms have saved around $8000, and $7400 of it is in a 3.5% savings account at the credit union where Phil works. They have about $600 in a regular checking account (with Mid-City Bank) that doesn't pay any interest. The Helms' combined take home pay is about $5000/month, and Phil thinks they should take the $7400 out of their savings and invest in the stock market to earn a better return. He points out that, excluding their life insurance policies, they have no other investments. Marcia thinks this plan might be too risky, but she does agree that the 3.5% yield is not very good.

Recently, at a party, a friend suggested they take out certificates of deposit (CDs) with long maturities because the CDs were paying around 6% in interest. The Helms liked her advice and stopped at Phil's credit union to get more information on the CDs. After talking with the office manager for a while, though, they became more confused. He didn't favor CDs; although, the union had them available. He pointed out that interest rates on the new money market accounts were around 4% and didn't require "freezing" your money for a year or more. He also indicated that the union could offer a super NOW account that would allow the Helms to close their current unproductive checking account with Mid-City. This account would give them unlimited check writing privileges with no service charges and would pay 3% interest; however, it would require a minimum balance of $2500. If their balance went below the minimum in a month, interest would be only 2%.

The Helms left the credit union without taking any action. They have asked you for advice on managing their liquid deposits.

In 3-4 paragraphs, answer the following questions.
Do you feel the Helms' $8000 liquid balance is adequate? Explain.
Explain the relative risks and potential advantages of CDs. Explain under what condition(s) you would recommend them for the Helms.
Do you agree with Phil that some of their funds should be invested in the stock market? Explain.
What are your recommendations for a cash management plan for the Helms?

Customer (name blocked for privacy)

The Helm's need to increase their liquid assets until they have reached the minimum of three full months of their total income. This information indicates that the Helm's need to save an additional seven thousand dollars before their safety cushion is adequate. The first thing that the Helm's need to do is to create a working budget in order that they can determine an appropriate amount of their money that can be safely withheld each month to increase their liquid funds.

It would be a wise investment for the Helm's to transfer their 600 dollars into a wonderful NOW account. The now account pays 3 percent interest if more than the minimum balance of 2500 dollars is maintained. If their balance drops below this, they will only earn 2 percent interest on their money. Regardless, they would still be earning a small amount of interest. To make it ideal they should only deposit enough into this account to pay their monthly, personal bills and enough money for miscellaneous items such as groceries, etc.

The Helm's should keep 1,000 in their regular savings to accomodate emergencies, such as new tires, for their vehicle, family emergencies, etc. This will keep cash on hand while paying them 3.5% interest on the money in the account.

The Helm's should take 5,000 of their savings and purchase several CD's with this. Though they could purchase one large CD it is in their best interest to purchase about three in different denominations and at different maturity points for the rollover. This way their money would be gaining 6% interest and though it would be frozen so to speak, it would be available at different times also.

The Helm's should place their remaining remaining 1400 dollars into stocks. Of importance is that their portfolio is diversified. They should divide it among utilities, oil and electricity to begin with as these are demand and needed items. As their monies grow they can diversify more. When they have purchased a stock that is lagging the loss will be minimal as the gain and dividends in the demanded commodities will offset the loss of these.

If this information is helpful to you then please accept. Positive feedback is also appreciated. Let me know if I can help you further.

PS: I have the written an answer for another of your questions posted on JA. I tried to post the spreadsheet with it, but it comes out in a language all of its own. LOL If you accept the other answer, I can send the spreadsheet to you via E-Mail. Thans and Good Luck in your studies.

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