Introduction
In this report an attempt is made to provide advice to Mr. R about the allocation of fund for investment. The advised is provided after taking into account relevant information related to economy and market. The main of this report is to provide recommendation to Mr. R along with the risk involved in the recommendation.
Relevance of different types of Investment products for Investment Planning
The investors are recommended to make investment in the group of assets for reducing the risk and increasing return. The investment made in the different group of assets and it is known as Portfolio Investment. There are different types of investment products available for investment. However, for Mr. X three class of investment product are evaluated for making investment decision this includes property stock, REITS and real property investment (Downes & Goodman, 2014). The different types of investment product have its own merits and demerits. The advantage of making investment in property stock is that the return is high however the risk involved is high. The investment in Real Estate Investment Trust (REIT) offer high income and growth for long term. The risk associated with investment in REIT is that the income is not guaranteed. The investment in real estate property may provide higher income but the prices are highly volatile so the risk involved in the investment is high (Samers & Lai, 2016). Therefore, to make the correct investment decision it is important to assess the market information and the risk talking ability of the investor.
Investment decision making process
In order to make the investment decision the first step is to analyze the risk profile of investor. The willing of the investor to take risk is known as the risk profile. It is important to determine the risk profile of the investor for proper allocation of fund in a portfolio. The investment strategy of the investor is dependent on the risk profile. The investment style of the investor varies according to the risk profile (PY La & Samers, 2016). There are five type of risk profile that includes conservative approach, cautions approach, moderate approach, moderately aggressive approach and aggressive approach. The allocation of fund in the assets is dependent on the risk profile of the investor. In this case, Mr. R is not an ordinary investor but a high net worth investor there it is assumed that the investment strategy that should be adopted is aggressive approach (Chellaraj & Mattoo, 2015).
In this case, for Mr. R the risk associated with the investment is not a deterring factor. The investment strategy is devised based on the return but it should be noted that investment is made in all the three classes of investment. It is advised that 50% of the fund will be invested in an asset that provides highest return. Then 30% of the funds are invested for an asset that provides second highest return. In case of assets that provide lowest return only 20% of the assets will be invested (Chellaraj & Mattoo, 2015).
Recommendation for investment
There are three classes of assets for investment. In property stock there are two types of stock. The selection among both the stock is done based on the dividend yield of the company on current market price. The calculation is given below:
|
Calculation of return from Investment on Stock (in billions)
|
|
Particulars
|
Book Value
|
Dividend Yield
|
Dividend Amount
|
Market Price
|
Return
|
|
Prosper Ltd.
|
13.5
|
1.75%
|
0.23625
|
9
|
3%
|
|
Mega Ltd.
|
0.85
|
2.25%
|
0.019125
|
1.1
|
2%
|
Table 1: Dividend Yield
(Source: Created by Author)
The table above shows that the return from investment in Prosper Limited 3% and the return of Mega Limited is 2%. Therefore, it can be said that the investment should be made in Prosper limited for earning an income of 3% on investment.
The second class of assets in which investments is REITS. There are two types of alternatives that are available in these classes of assets. The calculation is given below:
|
Calculation of return from Investment in REIT (in billions)
|
|
Particulars
|
Book Value
|
Dividend Yield
|
Dividend Amount
|
Market Price
|
Return
|
|
B- REIT
|
12.5
|
5.50%
|
0.6875
|
12.5
|
6%
|
Table 2: return
(Source: created by author)
The table above shows that the return that is received from B-REIT is 6%. The investment is made in these assets as the return is high. The investor is planning to invest in the real property. There are two alternatives for making the investment in property. The property that provides highest return is selected for investment. The calculation of return is given below:
|
Calculation of Return
|
|
Real Property
|
Type
|
Location
|
Size (sq. feet)
|
Property Price
|
Average Rent
|
Return
|
|
Residential Condominium
|
High End
|
Orchard/Tanglin Roads
|
1,200
|
2640000
|
93000
|
3.52%
|
|
Commercial Office
|
Grade A
|
TanjongPagar/Robinson Road
|
1,000
|
2600000
|
99000
|
3.81%
|
Table 3: Return from investment in property
(Source: created by author)
The table above shows the return that is received from investing in the property. The return on investing in commercial office is more than investment in residential property. Therefore, investment should be made based on the commercial property.
The investment that is recommended for Mr. R and the amount that should be invested is given below:
|
Calculation of Income
|
|
Particulars
|
Rate
|
% of Investment
|
Amount Invested
|
Return Amount
|
|
Prosper Ltd.
|
2.6%
|
20%
|
1000000
|
26250
|
|
B- REIT
|
6%
|
50%
|
2500000
|
137500
|
|
Commercial Office
|
3.81%
|
30%
|
1500000
|
57115.38462
|
|
Total Income
|
|
|
|
220865.38
|
|
return %
|
|
|
|
4%
|
Table 4: Calculation of Income
(Source: created by author)
The table above shows that the total income derived from the investment is SD220865.38. The return that is received from the investment is 4%.
Conclusion
The report above discusses the return that is received from investment. The inflation rate is 3% and the return received is 4%. Based on the above discussion it can be concluded that Mr. R should make investment in the recommended portfolio so that the risk is controlled and the risk is maximized.
References
Amri, M. (2015). Mirror Images in Different Frames? Johor, the Riau Islands, and Competition for Investment from Singapore.
Chellaraj, G., & Mattoo, A. (2015). Can the knowledge capital model explain foreign investment in services? the case of Singapore.
Desierto, D. A. (2015). Public policy in international economic law: the ICESCR in trade, finance, and investment. Oxford University Press, USA.
Downes, J., & Goodman, J. (2014). Dictionary of finance and investment terms. Barron's educational series.
Ogawa, K. (2015). Firm investment, liquidity and bank health: A panel study of Asian firms in the 2000s. Journal of Asian Economics, 38, 44-54.
PY Lai, K., & Samers, M. (2016). Conceptualizing Islamic banking and finance: a comparison of its development and governance in Malaysia and Singapore. The Pacific Review, 1-20.
Raj, A. N. (2016). Do monthly anomalies still exist as a profitable investment strategy: Evidence based on the Singapore stock market. Central European Review of Economics & Finance, 16(6), 17-32.
Samers, M., & Lai, K. P. (2016). Conceptualising Islamic Banking and Finance in Malaysia and Singapore: Conventional Rule Regimes, National Forms of Governance, and Islamic Financial Architectures.
