Balancing Act

Alexis James is adjusting to the financial realities of working in corporate America and running her father's private firm

a home in 2006 would likely preclude her from substantially increasing her savings rate, says Freeman. James lives in an area where year-over-year increases in home prices were up 18%-25% through June 2005. “This rate of increase is not sustainable, which means that home prices in her area could come under pressure, especially if rates continue to rise,” he predicts. Freeman advises James to save for a down payment and to be on the lookout for condo foreclosures where the homeowner may have had an adjustable rate mortgage or interest-only mortgage that he or she can no longer afford. “This will allow her to pick up a nice unit at a good price,” he says. James can go to the local courthouse to get a listing of foreclosed properties and then do a drive-by of the houses to see the condition of each of them. She can then contact the bank holding the loan and make an offer.

If James insists on purchasing a home sooner than later, Freeman offers this alternative:

Based on her income, James should have no problem qualifying for a mortgage in the $200,000 to $220,000 range. Assuming a 5% down payment, she should be looking at condos with a purchase price of $210,000 to $231,000. Any purchase price above this range will require resources over and above that which she could reasonably accumulate by the fourth quarter of 2006.

Readjust her investment portfolio. James’ stock portfolio is overexposed in large-cap growth stocks, at 40.61%. She has 20% in cash, 17.5% in large-cap value stocks, 7.08% in U.S. government bonds, 6.18% in mid-cap growth, 4.92% in corporate bonds, 2.39% in international equities, and 1.24% in small-cap growth. To help manage risk better and to provide the long-term growth she needs, Freeman suggests James diversify more into large-cap value stocks as well as mid caps and small caps. James also is heavily weighted in tech stocks, at 32% of her overall portfolio. Freeman suggests liquidating some
of these investments so that she has no more than 15% in this sector. He also recommends that James further diversify by adding growth stock mutual funds to her portfolio, using the $2,000 contest winnings toward this objective. In addition, James should reallocate funds in her 401(k), to be more aggressive, given her young age, so that it has 80% in equities and 20% in cash/cash equivalents versus 68% in equities, 12% fixed income and 20% cash.

Each year the family awards the Janet M. James Sewing Scholarship, a $1,000 scholarship to a local high school student in memory of James’ mother, a former schoolteacher. James, who chips in $300 annually, should consider establishing a donor advised fund or similar charitable entity (see “Seven Ways To Give To Your Favorite Causes,” August 2005). This way, family members could take advantage of tax breaks for their benevolence.

Financial Snapshot: Alexis James

HOUSEHOLD INCOME

Gross Income $70,000

ASSETS

Cash/Cash Equivalents $9,531
Stocks 12,508
Shares in Investment Club 2,272
401 (k) 25,581
Real Estate (Time Share) 6,000
Art &

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