John Gilbert Case Solution

For the plan to cover the budgeted annual expenditures, the pension fund must generate close to 4% return or $40,000. The proposed portfolio for the investment of the funds in the Pension Fund is as follows:

There is a high proportion of funds invested in bonds including the Diversified Bond Fund and the Canadian Bond Fund. Considering their age, investing in bonds means a lesser degree of risk, which would be ideal for Gilberts. As the inflation would increase, interest rates would also rise reflecting the increased premium, adjusting the returns as per the inflation levels. Apart from this, the proposed portfolio would still have a higher concentration of money market funds, as they have the least risk. Also, money market instruments are highly liquid, allowing Gilberts to liquidate their investment, whenever they are short of funds.

The plan will help in providing for the annual expenditure of Gilbert over their remaining lifetimes as the investment will be done on 10 years bond instruments. Thus, it would lock in a favorable rate that would allow the Gilberts to cover up their projected expenses as well as those expenses that they have not accounted for in their projections.