Investment Recommendations For Louis And Larissa Edberg

1. You are required to analyse the two products and provide a table which compares the costs and features, including the investment objectives and styles. (This table and any narrative should be included as an attachment to the client report.) Information for each fund manager can be found in the assessment folder.

2. Advise the clients on whether gearing is suitable for them and, if so, how this could be achieved and what level of gearing you would recommend. You need  to explain to the clients in detail the risks and benefits associated with gearing.

Covering Letter 

Louis and Larissa Edberg

Address Line: 22 Curve Street Hill Rise Victoria 3888 

Dear Louis and Larissa,

I am highly obliged that you have given me the opportunity to have a meeting with you and forward with the recommendations that have been framed in accordance to the information that have been forwarded to me. These data would be helpful in undertaking investments effectively and the income and the returns that would be received will be helpful in improving your lifestyle and even life after post retirement.

The Risk Profile answers and the Fact Finder provided during the meeting has been very helpful in as an effective knowledge about the current goals, objectives and the current scenario that is existent and the mindset towards security, returns, risks and volatility.

The results that would be gathered can be used for the purpose of framing the SoA. This report would act as a record that can be taken as an advice by you and your family thereby would be helpful in attaining the individual circumstances and goals that even includes the fees, interests and any other costs that have an influence over the advice.

In case there are any transformations in the lifestyle with the advent of time then, additional advices can be given with the help of which the sustainable lifestyle can be maintained. I therefore look forward to help you in any other advices and incorporation of the strategies and the plans and thereby able to provide continuous assistance and services. The services and the recommendations that have been given are in compliance with the requirements of ASIC.

Regards

John Johnson    

Signature      

Financial Adviser 

By assessing the present condition, Louis and Larissa Edberg are married for a long tenure and are both 48 years old. They have their home in Victoria and have two dependent children Michael and Meena. Louis and Larissa have been working full time and earn significant amount of money Louis has a yearly income of $ 180,000 and on the other hand his wife Larissa has an annual income of $ 30,000. The couple, each one of them have super life contribution that have a current value of $300,000 for Louis and $50,000 for Larissa each. The house they reside in has existing mortgage and they have the idea of repaying their mortgage before they retire. The couple have a holiday home for themselves where they reside on family vacations and this holiday home has an existing mortgage as well. The couple have the idea of using their holiday home for investment purpose if they desire.  The couple are aged 48 years and therefore have nearing the age of retiring and therefore they are looking to undertake investments in the managed funds in order to secure long term capital growth and income which they can make use of one they retire. This income would be helpful in maintaining their current lifestyle even after retirement. These are the factors due to which the couple are seeking advice that would assist them in taking up investments .that are suitable for them and thereby gain additional income from the same for the purpose of retirement.                   

Goals and Objectives

The couple Louis and Larissa like any other couple are looking for long term generation of income with the help of which they would have a secured future and would not have to think about wealth once they retire. Risk is a key factor and therefore they are in the idea of looking into the investments that would provide them with significant amount of income and the level of risk would be moderate if the income return is able to mitigate the risk. The couple are in the idea of paying out the mortgage for their house and the holiday home that they have within the next 5 years. They are even in the idea of constructing wealth with an idea of getting $200,000 invested in the next 10 years’ time. This amount would be in terms with the present value of dollar. The couple even have the aim of reducing their level of taxes wherever possible. They even want to acquire a car for themselves within the next 5 year with the help of the returns that would be attained from the investments. They would even want to continue their charitable donations till they can and wants to have an expenditure of $5,000 per annum. Their children are still dependent and therefore want to save a significant amount of cash that they can make use of for meeting the expenses of their children. Hence, they want to save money in order to pay for the university fees for their children who have been projected to $50,000 for each of their children in the time period of next 10 years and value is estimated in the current term of dollar. Larissa even has the aim of increasing her income by completing her nursing degree and thereby has estimated that her income would get increased to $60,000 per annum. The most significant goal of the couple has been to make sure that their wishes that have been expressed are fulfilled even after the pass away. The couple are not in the idea of investing into superannuation and any other estate planning as the couple have existing superannuation and holiday home and therefore focus should be given on the investments.       

The goals and objectives can be classified in accordance to the short, medium and long term aspects.

Short Term Objectives

• To reduce taxation where possible
• To make charitable donations of $5,000 per annum

Medium Term Objectives

• To pay off house and holiday home in 5 years.
• To acquire a new car every 5 years

Long Term Objectives

• To build wealth with a goal of $200,000 invested in 10 years’ time (today’s dollars terms)
• To save to pay for children’s university degrees (estimated at $50,000 each) in 10 years’ time (today’s dollars terms)
• To ensure that their wishes are carried out when they pass away

There are several recommendations that can be given in accordance to the goals and objectives that have been highlighted earlier. They are as follows:  

Short-term, Medium-term, and Long-term Objectives

Wealth Protection

The protection of debt can be initiated with the knowledge of reducing level of debt by taking assistive actions and thereby protecting their wealth. The wealth protection can be undertaken with the help of effective assessment of the portfolio of the investments with respect to the market which has a tendency to change.

In order to accumulate wealth, the couple needs to make use of the effective earnings from their deposits and thereby increasing their income and therefore the client is in need of investing in funds after maturity in distinct managed fund investments like in shares and bonds and even in products of managed funds that would invest their money and saves time of the couple of looking into their investments from time to time.     

The couple have two mortgages out of which one of the mortgage for the house where they currently reside and another for a holiday home that they have. They want to pay out the mortgage within 5 years’ time and thereby wants to pay their debt off before retirement. The couple in order to increase their income can even opt for giving out the holiday home for rent purpose to visitors as a holiday home with the help of which the couple can earn additional income. This additional income can be helpful to meet the goals and objectives that have been discussed earlier.    

There are scope of several projections in accordance to the future expenditure that needs to be regarded like the legislation associated to income tax, the rate of taxes, rate of the investment returns and the level of inflation so that effective suggestions can be given. The significant transformations in these components would helpful for reflective effects on the future strategy and the financial position. It is essential to appreciate the projections and thereby can act a guideline and the projected outcome may not be assumed with the level of certainty.

The recommended and the projected outcomes discloses that the development of the investment portfolio that consists of the several investments in the shares and equities and also in certain bonds that can lead to the increase in the level of earnings and income that would improve the financial scenario of the couple. The recommendations are inclusive of undertaking investments in various bonds and shares so that the risk that is present is distributed evenly with the help of which the level of income gets increased. There has been an observation that the couple do not insurance for themselves and therefore should look to purchase insurances for them in order to mitigate the risk of financial distress in case any unprecedented things arises and even after death. In case of death, their spouse would receive financial remuneration and thereby would be able to improve the financial scenario of their family. Insurance can even be taken for the house and the holiday home with the help of which these assets can be secured as well. The couple have car of their own and therefore should look to purchase insurance for their car as well. The couple have the intention of saving money so that they can pay for the university expenses of their children and therefore even look to undertake comparison of the various products that are available to them in the market. The process of comparison would be helpful in understanding the product that is appropriate for them.

Recommendations

The product disclosure statement and the investment plans need to be assessed by undertaking a comparison with the past performances of the selected products thereby having an idea about the present performance of the products and therefore aids in the undertaking of the investment decisions. The statements are even assessed and compared with the disclosed reports by the couple and the financial adviser in order to have some knowledge about the various disclosure statement of the product.

The information that is quantitative in nature that has been gained from the data given in the statements and thereby several changes that are taking in the economy and the market so that effective developments can be taken by assistance of the products that would be recommended to the couple.

Risks related to investment can be explained as the likelihood and the probability of the losses that can be incurred in association to the anticipated returns on any specific investment. It is simply a measure of the extent of the uncertainty of accomplishing the returns according to the expectations of the investors. It is the level of the unprecedented results that needs to be realised.  Risk has been a key aspect in the evaluation of the prospects of an investment. Most of the shareholders and the investors while undertaking an investment look for the kind of investments that have less amount of risks. The lower amount of investment risks makes the investment much more attractive and lucrative. On the other hand, the thumb rule has been that increased risks leads to enhanced returns.

The risk profile of the couple have been understood by gaining an idea of the questions that have been answered by them. The risk profile has been constructed by considering the investment strategy that is apt in accordance to the distinct circumstances that has been concluded in the Risk Profile Questionnaire with the help of meaningful and precise assessment of the eagerness to accept the risk. The questionnaire that has been given answers to the experiences, values and attitude.  The couple are in the idea of undertaking investments that would provide long term returns which would be for 5-7 years. The couple are even in the intention of the being comfortable with this trade off in order to compete with the inflation. They have significant amount of experience in the investment scenario and therefore understand the importance of diversification. The most aggressive investments that they have undertaken is the managed funds. They are very patient as an investor as in case of decline in the investment portfolio they would be wait for the investment to recover as they have the intention of long term benefits from the investments. The couple have their focus on the capital growth and would like to reinvest the income that is generated by them.  As their aim has been to gain significant amount of income after their time of retirement, they are not in the requirement of liquidity and therefore does not need to maintain easy access to the funds that have been invested. The comfortable mix of the couple has been that they prefer prospectively increased returns that would provide optimum saving of tax even though this would mean increased risk and volatility. The volatility that is existent in the investment values is acceptable given the increased term of the objectives of the capital growth.

Wealth Protection

The assessment of the risk profile of the couple has compelled to take the decision that the couple are balanced investors. They are in the idea of having a balanced portfolio that would work towards medium to long term financial objectives and therefore require investment strategy which would cope with the impacts that can take place due to inflation and tax. The couple accepts calculative risks in order to gain effective amount of returns.  The eagerness to grant the portfolio volatility and their return for the potentiality of the higher returns. They would even want to generate capital growth and income in accordance to the timeframe of the investment after paying out for the expenses that have been identified. The appropriate allocation of the assets involves the allocating their investment in the international equities that comes to 21% and in the Australian equities amounting to 32%. It would be appropriate to invest in property which would have a percentage of 20% and 19% in the fixed income. The rest of 8% would be invested in cash. This extent of the asset allocation is ideal for having a balanced risk profile and thereby would be able to meet the goals and objectives of the couple. The table below highlights the same.

There are various products that are available in the market and one has to take extensive measures with the help of which the suitable for product for a particular investor can be understood. By assessing the client profile and their needs and requirements, it is clear that they are opting for long term capital development and they have the idea of investing in funds that would provide significant amount of returns with moderate volatility. There are two investment products that are recommended to the couple and one has been the Russell Investment Fund and the other has been Vanguard Investment.

When coming to the factor for investment, it is hard to determine a trend. Therefore this company has concentrated on developing strategic allocation of the assets by constructing a framework for the investment strategy that would be suitable for the risk profile of the investors and thereby giving out a solid base for the investors to attain their expectations and goals. The company generally invests in long term funds as they have the idea that markets are volatile and is dependent on the various external factors like the political, economic and social. Hence, it becomes difficult to understand the market activities and therefore long term investments are important. The long term investments can be useful for attaining the goals and objectives of the investor. The company even diversifies their products and thereby distributing the risks that are existent with investments. The associated costs are significantly low and have a product disclosure statement that explains the asset allocation to the customers effectively. The asset allocation is distributed in such a manner, that changes can be made in accordance to the requirement of the client. The risks that are associated with the investments have been laid down in an effective manner so that discrepancies are present in the mind of the customers. There are various products that are offered by the firm and the one that is suitable for the client can be recommended for purchase.

Investment Portfolio Development

Russell Investment Management Ltd on the other hand, is a company that provides operations in accordance to the operations of the fund in line with the Corporations Act 20011. The product disclosure statement of the product explains the process with the help of which the funds work by explaining the process of investing and the fees that are associated with it. The process of withdrawing the investment is even laid down so that the customers can have an idea about the process and thereby complete their business with the company effectively. There can be circumstances where suspension of the transactions can be understood as such circumstances can arise. The distribution of the funds that would be undertaken by the firm is laid down to the client. The risk associated with the managed investment schemes is even explained and thereby the client would be able to understand their level of returns due to the risk that is associated with the investments. The benefits of investing in the funds are addressed and their unique selling proposition to the quality of the ingredients, effective incorporation and management of the multi-asset solutions are highlighted to the client.

By examining the product that have been offered by the two companies, it is suggested that investment product of Vanguard is ideal for Louis and Larissa as the goals and objectives that they have would met by investing in Vanguard’s product. Vanguard Life Strategy Balanced Fund is ideal for the couple rather than Russell Investments Diversified 50 Fund Class A Units. Vanguard Life Strategy Balanced Fund is actively associated for the investments that balanced risk profile investors want to undertake. This product effectively has a strategic allocation of the assets that ranges from 20-24% for Australian shares, 15-19% from International Shares, 18-22% for Australian fixed interest, Properties within 1-5%. These are the aspects where the couple wants to undertake investments and therefore this product is ideally suitable for them. The product being focused on the balanced investors have the minimum amount of risk with significant amount of stable returns with probabilities of higher returns when the market is performing exceedingly well. There are certain chances of the loss of capital but the level of capital growth is significantly higher if the investment is maintained for a longer time period.  The minimum suggested investment frame for this product is 5 years and this is ideally suited for them. The fees associated with this product is reasonable as well and this would reduce the investment expense for the couple.

On the other hand, Russell Investments Diversified 50 Fund Class A Units is a good product as well but there are certain traits that are not ideal for Louis and Larissa. The associated costs for this product is relatively higher and the asset allocation investment has been different with respect to the requirement of the client. There is no specific balanced product that the client can purchase and therefore the risks associated with the product would be a bit higher than Vanguard. Therefore, Vanguard is suggested for the client.     

Analysis of Russell and Vanguard

The process of gearing explains the level of the debt of an investment that is associated with the equity and is addressed in the form of percentage. It is a measure for the financial leverage of an investment and explains the extent to which the activities are funded. Gearing is borrowing to invest and in other terms undertaking investments in the leveraged assets. It is helpful in transforming the extent of risk in the investment strategy. The risks associated with gearing involves the risk in the cash, shares, fixed interest and properties. In accordance to the requirement and objective of the client, there has been an observation that interest and other costs are lower than the income received from the investment. Therefore, the couple can undertake positive gearing with the help of which they can claim for deductions in the taxes for the costs and the interests with respect to the income from investment. The taxable income would be subjective to income tax at the marginal tax rate. The income that is surplus can be used for the purpose of reducing the loan size. The positive gearing can lead to the generation of long term reliable income and development of capital growth till the time it is kept. Hence, the couple can opt for the same with the help of which their investments can enhance.