Task Details: Imagine that you graduated a year ago, and joined a firm of accountants and investment advisers.
On 31 December, 2019, a client, Miss Jean Brown, a single lady born on 30 December, 1954 and who has just retired, seeks your investment advice. She tells you that she owns her own apartment in Balmain, worth $1,000,000, in which she intends to live for the rest of her life. She has used her life’s savings to pay off the mortgage on her apartment and now has no debts. She also has no income, no superannuation, no other savings and has no dependants. However, she has just inherited $2,000,000, which she wishes to invest in a diversified investment portfolio, and seeks your advice on its construction.
She wishes the portfolio to provide an income of $70,000 a year, which will enable her to live comfortably in retirement, including paying for an annual overseas holiday. She says she is in good health and expects to live at least for another 20 years.
After questioning, you assess that she has a moderately conservative risk profile, and wishes to spread her funds across the four main asset classes of Australian securities, namely, Australian company shares, Australian listed property trusts (or REITs – real estate investment trusts), Australian fixed interest securities (Commonwealth and State Government bonds) and Australian cash or equivalents (e.g., cash at bank, Treasury notes, and bank bills). She is willing to invest up to 50% of her inheritance in risky assets (company shares and listed property trusts) and the balance in fixed interest and cash. To provide a measure of diversification, she wishes to invest in three different securities in each asset class.
Because of exchange rate and other risks, she does not wish to include any foreign or overseas assets or alternative investment assets in her portfolio. On her death, she wishes to have, if possible, more than $2,000,000 (plus her apartment) in her estate, which she plans to leave in equal proportions (50% each) under her will to a niece and to the Red Cross (an international charity).
You are required to prepare a three-part report; each part of which Miss Brown accepts and implements.
Part A of the report, following the Introduction, is a literature survey or review of selected reference books, articles, web-sites and other sources used in the preparation of the report.
Part B of the report is the preparation of a Statement of Investment Advice to Miss Brown, specifying: – her personal details, her broad investment objectives and goals, and her risk profile; – the then (at end of 2019) domestic economic (with a focus on economic growth, inflation and interest rates) and investment outlook (expected returns and risks) for each of the above four Australian asset classes;