Question 1.
a) Given your assessment of the current state of the Australian economy, design an investment portfolio (asset allocation) utilising the 4 basic asset classes of;
– Equities (shares),
– Property,
– Fixed Interest, and
– Cash
for both a conservative investor and an aggressive investor, who each expects to work for another 20 years and has each just inherited $2 million from the passing of a long-lost uncle. Both investors are able to generate sufficient income from their current work environment to meet their living expenses and to provide for a modest amount of savings.
Note: Each portfolio should include a mix of direct and indirect investments and the asset allocation (conservative / aggressive investor) of each portfolio should be justified. It is also not necessary to select individual investments (such as Telstra shares, residential property in North Adelaide etc.) but you can if you choose isolate different industries for shares / property types / national and/or international investments.
(Students should write no more than 350 words for this part of the question).
b) Discuss the differences between the 2 investment portfolios prepared.
(Students should write no more than 100 words for this part of the question).
Question 2.
a) You are an experienced licensed financial adviser with a client (Sally Smith) who is approaching retirement (within 10 years) and is likely to have insufficient savings when moving from the working to retirement phase of her life cycle. After completing a questionnaire, you have determined that Sally’s risk profile is moderately aggressive, although most of her current savings are held in bank deposits.
Required
Briefly discuss how you would encourage Sally to change her investment philosophy with her savings given her current situation. Include in your discussion some recommended investments / asset classes for Sally to consider.
(Students should write no more than 200 words for this part of the question).
b) The further financial consideration for many people, including potentially Sally, will be the issue of longevity risk – the risk that she may outlive her savings and thus have to severely restrict her lifestyle in later years. Provide some brief discussion as how Sally
2
can best ensure, given likely modest amounts available at retirement, to reduce the potential adverse impacts of longevity risk.
(Students should write no more than 150 words for this part of the question).
Question 3.
Approximately 30+ years ago, the most common form of life insurance policies provided to the Australian market were Whole-of-life / Endowment insurance policies. Nowadays it is very unusual to see these (Whole-of-life / Endowment) policies being offered, with term-life policies being the predominant type of life policy taken up.
Required
Briefly discuss what brought about this drastic change in popularity of particular life insurance policies in recent times and, if possible, utilise some basic research to provide some statistical evidence to justify your discussion.
(Students should write no more than 200 words for this part of the question).