Yanni and Joanna require some investment advice. Joanna has sold $660,000 worth of Woolworths Limited (WOW) shares that she inherited late previous financial year. She has $616,000 remaining after paying capital gains tax, which she has deposited in a cash management account. The couple would like you to practice a formal investment plan to help them appropriately invest this money. During your discussion, you gather the following information:
- Yanni is 51 years old and Joanna is 52.
- They have been married for over 20 years and have 2 adult children, one is currently completing a Masters degree in Economics and 1 has a Masters degree in English Literature. Both children still live at home and the eldest child is engaged to be married. Once married, she expects to continue to live with her spouse in the family home for three years while they save for their own home.
- Yanni gets a salary of $202,000 p.a. as a purchasing manager for Woolworths.
- You have already determined that Yanni and Joanna's employer superannuation balances are sufficient for their requires at this time, as they have both been investing into personal superannuation via salary sacrifice on top of their compulsory contributions. You have already confirmed that these arrangements are satisfactory.
- They live in a large and comfortable new home worth approximately $925,000. They see no require to change their living arrangements before retirement.
- They have a personal mortgage balance of $150,000 secured against their home, a $12,000 bank credit card debt and $4,000 spread over three store credit cards.
- They own an investment property worth $418,000 with an attached investment loan/mortgage of $280,000. They do not need to sell this property.
- They say that they have been investing for some years; though, they still feel overwhelmed by the number of options available and concerned about recent market volatility.
- They say that they have been investing for some years; however, they still feel overwhelmed by the number of options available and concerned about recent market volatility.
- They are worried about losing their cash and have so far avoided investing at all, apart from depositing it in the cash management trust.
Questions
You should prepare an investment plan proposal for your clients. You are needed to provide:
a) A short but comprehensive discussion of investment return, risk and diversification.
b) Suggested non-superannuation strategies with overall asset allocation table(s).
c) Suggested investment products to execute the agreed asset allocations. While you will not be assessed on your specific brand choices, you will be assessed on the appropriateness of the strategies and types of products recommended.
d) Assumptions that you make in the plan, including justification of those assumptions. Credit will be deducted where this is not given or the assumptions change the specifications of the assignment.
e) Advantages, drawbacks, justifications and risks of the strategy and product recommendations you make.