He is the basic bureaucrat. He's 53 years old, has two kids who are almost grown, makes $35,000 a year and just inherited $250,000.
How should he invest the money?
Three veteran money managers tackled that hypothetical problem this week for the Washington Society of Investment Analysts.
They generally agreed on a balanced portfolio, putting 50 to 80 per cent of the money into common stocks and the remainder into tax-exempt government securities.
Higher interest rates and a recovery of the stock market that will push the Dow Jones index back over 1,000 were forecast by the analysts.
Smaller banks, utilities with growing markets, food and energy companies were the portfolio favorites, with several blue chips specifically let out of the investment plans.
The strategies were mapped out by three veteran Washington investment professionals:
Julia M. Walsh, a broker with Ferris & Co. from 1955 until last year when she formed her own brokerage firm, Julia M. Walsh & Sons, Inc.
Terrence L. Bercini, a trust department manager since 1966, who now manages institutional investments for American Security Bank.
John W. Davidgre Jr., a former bank investment planner who, since 1950, has headed his own firm, Davidge & Co.
They were given a pair of problems - the $250,000 inheritance all in cash, and a legacy the same size, half of it invested in utility, bank, oil and industrial stocks and $125,000 of it in IBM stock.
Although all three worked with the same imaginary investor, the brokers made some different assumptions about investment goals that they stressed woudl alter the approach for a specific investor.
With the cash inheritance, Walsh put $50,000 in municipal bonds, $150,000 in "medium and high quality" stocks, $30,000 in "aggressive growth stocks" and $20,000 in cash or its equivalent.
She said she assumed the hypothetical investor was "a very conservative government worker" who already had a sizeable nest egg for emergencies and his children's education.
The $50,000 investment in bonds would yield 6.2 per cent interest and additional cash income could come from dividends on the quality stocks, Walsh said. She listed Bank of America, Consolidated Foods, EnvironTech, International Telpehone & Telegraph and Johns Mansville as possible buys.
For the 15 per cent of the portfolio invested for growth, Walsh's recommendations included Lear Sigler, Data Products Corp. and Earth Resources.
The $20,000 in cash, she said "is so he can be more aggressive," taking advantage of immediate investment opportunities, including stocks or real estate.
If the imaginary client inherited the quarter million in stocks instead of cash, Walsh said she would "immediately begin to reduce" the $125,000 IBM holding specified in the exercise.
To offset the capital gains from the sale (assumed to be $100,000), Walsh suggested setting up a real estate tax shelter to produce paper losses and reduce income taxes. She also suggested disposing of the holding over a period of years if possible, but said "I wouldn't be afraid to unload it all by Jan. 3" if necessary.
Bercini theorized that a veteran government employee would not want his family legacy invested in volatile stocks that would swing widely in value and stressed the importance of determining how much risk the investor was willing to take and how much income he wanted.
"Questions like this have to be asked, even at the risk of embarrassing the client," he said.
Bercini said the $125,000 in municipal bonds would be spread over several months, to take advantage of anticipated increases in interest rates.
Figuring that a $35,000-a-year government employee probably is in the 39 per cent income tax bracket, a rate which would rise with his income, Bercini suggested tax-free bonds would be best for producing income.
Companies in the consumer non-durable goods business suggested by Bercini included American Broadcasting Co., Phillip Morris, Revlon, Pepsico, and K mart.
In capital goods, IBM and Reliance Electric were his choices. Bercini said he "would have no problem" with a client keeping the IBM stock.
Cautious about energy investments, he said his portfolio would stick to "domestic companies - if any" in that area and mentioned Phillips Petroleum as a possibility.
As an investment specialist for American Security Bank, Bercini said he saw the real gross national product increasing 3 to 5 per cent next year, the consumer price index moving up 6 to 6.5 points, and interest costs increasing up to one point.
Overall, he rated the economy as "neutral to plus" next year and said the impact of interest rates would be "neutral to minus." Of the stock market he commented, "We're positive - at 800 there are some pretty good values available."
Davidge, like Bercini, put a heavy investment in government securities in his projected portfolio.
He suggested $30,000 in Treasury bills, $30,000 in three-year Treasury notes, and $50,000 in tax-exempt five-year bonds.
Davidge suggested a $140,000 allocation to common stocks, split among big companies such as IBM, General Electric, Exxon, Pepsico, American Natural Resources, United Technologies Corp. and Schlumberger and smaller, more volatile companies such as Washington Real Estate Investment Trust, Wheelabrator Frye, General Signal, Universal Leaf Tobacco and Petrolane.
Like the other analysts, he suggested the person who inherited a large block of IBM should gradually reduce the holding so it does not dominate the investment holdings.
Davidge noted that whether an investor lives in Maryland, Virginia or the District of Columbia can have a bearing on investments in tax-free securities.