Instructions to students: This is an individual assignment.

All Questions are compulsory.

Task: DFP4_AS_v3 Securities and Managed Investments Assignment

Case study 1 : Arthur and Gwen

Background information

Arthur (61) and Gwen (62) have recently sold their four-bedroom home of 35 years, downsizing into a new ‘over 55s’ townhouse. This has generated net proceeds of $250,000, and as this is the first time they have a significant amount of surplus funds, they have decided to seek some investment advice. After some discussion, you have determined the following facts.

Employment

Arthur is still working, but will look to retire from the workforce in two years time. Arthur earns $120,000 (including super) as a meteorologist. Gwen does not work and has no intention of rejoining the workforce.

Savings and spending

Arthur is not currently making any contributions into super apart from his employer’s 9.5% SGC. Since paying off their mortgage a few years ago, they have tended to save about $5000 every year from Arthur’s income, which has been going to their savings account. They have looked at their budget over the years and they figure that they spend about $1000 per week on bills, food and lifestyle expenses. This level of spending will likely continue after Arthur is retired.

 

Investment objectives

•    Neither Arthur nor Gwen has had any experience with investing (apart from term deposits). They were both surprised to hear that they had the ability to decide how their superannuation was invested.

•    They are definitely worried about losing money through their investments, and when first asked they indicated that they want to eliminate the risk of any capital losses. However, after some discussion, you uncover that they would be comfortable with some volatility, including short-term losses, but wanted to limit losses in any one year to –10% of the starting investment value.

•    Arthur feels that a return of about 10–15% p.a. would be good. He saw the value of his old home increase five fold since they initially purchased it and understands that investments can earn a lot more than term deposits. Gwen commented that she has a friend ‘who does some sort of FX trading and she makes a lot of money through investing’.

Question 1

(a)       Determine the clients’ ability to take on investment risk (low, average, high) and provide two (2) key reasons for this assessment. (100 words)

(b)          Determine the clients’willingness to take on investment risk (low, average, high) and provide two (2) key reasons for this assessment. (100 words)

Question 2

Is the clients’ return objective appropriate? Why or why not? What further actions should be taken prior to establishing an investment strategy? (200 words)

Case study 2: DFP4_AS_v3 Securities and Managed Investments Assignment-Kaplan Business School Australia

Marius and Corsette

Background information

Marius (32) is a systems engineer in the local arm of a large multinational software company. He is married to Corsette (28). They have two young children and they live in an apartment in the inner city. He has recently inherited his grandfather’s Australian share portfolio, a property located in a different city and some cash, and he is looking for investment advice. Following a lengthy fact-find meeting with only Marius, you have collated the following information.

Employment

Marius has been working for his current employer for 18 months and earns $135,000 plus 9.5% SGC. Corsette has never been gainfully employed, but is currently studying part-time. Marius has no plans to retire in the foreseeable future.

Savings and spending

Marius and Corsette spend most of their income, with any surplus funds usually used to fund new gadgets, cars or holidays.

Risk profile

Marius has determined that his investments should be managed in line with that of a ‘growth’ investor. He understands the risks that come with such a strategy, but is willing to accept these risks due to the long time frame he has until his potential retirement.

Question 1

(a)       Determine the client’s ability to take on investment risk (low, average, high) and provide two (2) key reasons for this assessment. (100 words)

(b)          Determine the client’s willingness to take on investment risk (low, average, high) and provide two (2) key reasons for this assessment. (100 words)

Question 2

(a)       Identify the client’s main investment constraints. Are these objectives rational from an investment point of view? (200 words)

(b)          How might these constraints affect the client’s asset allocation? What are some appropriate ways of dealing with this? (200 words)

 

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