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Financial Planning

Assignment Requirements
Can you work on priority 2 and Supa as well?
Because if we are to use the link you’ve included, could you write up something similar to what I have done in other priorities?​ Same for Supa.
And can you fix the format for the income section and also to make sure lecturer understands, just write a short sentence or two to explain what the calculations are.
Don’t worry about page 10 and onwards. It is still unfinished but I want to show you so we can move in the same direction.
I will post 2 documents and 1 description of the assignment.
FINS5510 SOA Recommendations
Priority 6 – Pay off credit cards and car loan as soon as possible.
Target Goal: 0
Time: Now
Pay off the AAA credit card debt of $5000 immediately. Pay off BBB Credit Card debt fortnightly. Continue to pay off Car Loan.
It is recommended that Stuart and Marie use the $7000 Cash Assets they currently have in various bank accounts to pay off the $5000 Interest Only AAA Credit Card debt. In particular, it would be best to use the $2000 in the AAA Bank Account and the $3000 in the BBB Bank Account.
It is also recommended that Stuart and Marie continue to pay off the BBB Credit Card debt fortnightly as before.
Finally it is recommended that
An alternative recommendation is to invest into short-term money market instruments. This type of instrument is the means to finance any short-term cash requirements; most of these products generate fixed income with maturity of a year or less, issuers are usually high in credit rating hence the return is less attractive compare to longer term instruments.
To functionally participate, the couple will need to set a side a lump sum equivalent to their estimated expected return or an amount within an allowable scope to invest over a short-term period. However to realise the actual income to offset their short-term liabilities, the couple will need to withstand the first investment period of paying off their usual short-term liabilities while setting aside a portion of their capital to finance into this type of investment. From second investment period and onwards, they will realise their return and begin to offset their short-term expenses. The return will be the matured principle minus the discounted principle at time zero.
However as stated in the goals section, such investment decision is categorized as the last priority the 6th, meaning the magnitude of income/capital being set aside needs to calculate based on a condition that will not create any financial distress that jeopardize any higher priorities such as over weighting.
Priority 1 – Start to save a sufficient deposit to buy own property in four to five years’ time. Want a 20% deposit but don’t know what is affordable.
Note: Avoid the chance to overstretch investment span and wish to restrict mortgage repayments to approximately $4,500 (current monthly cash surplus plus allowance for rent).
Target Goal: $200000
Time: 5 Years
Data Source:
Using figures from, http://www.realestate.com.au/sold/property-house-with-2-bedrooms-in-botany%2c+nsw+2019/list-1?numParkingSpaces=1&numBaths=1&maxBeds=2&source=refinements and http://www.canstar.com.au/home-loans/compare-first-home-buyer-home-loans/
Assuming buying a two bedroom, two bathroom and two parking space garage home in Botany, using the prices of home sold in the area to as basis for the approximate price of the home Stuart and Marie will buy, which is in the range of $800,000 to $1,125,000.
Assuming $1,000,000 as the house’s price.
The “Choice Package Standard Fixed 5 years 150k+” is a NAB 5 years fixed interest rate home loan.
For the amount of $800,000
The loan has a 4.99% interest rate
The loan also has a $4289.69 monthly repayment; as such it is within budget.
Thus the 20% deposit to be saved would be $200,000.
Restriction on mortgage repayment to no more than $4500 a month including monthly cash surplus and rent allowance with an investment period of four to five years, it is classified as a typical medium term investment.
This graph intends to demonstrate return of different types of securities type range from long-medium-short term investment.
A medium term investment diverts our attention to the first five years and based on risk profile showing the risk appetite of Stuart and Marie, appropriate recommendations are to provide individually with their differing objectives.
Mr. Stuart Armstrong
Risk Profile Score: 280 (Moderately Aggressive)
Growth investor and willing to accept volatility in short to medium term with a primary concern of accumulating growth assets over time, targeted investment mix to diversify across asset sectors.
Portfolio Objective
Structuring a growth investment portfolio seeking to maximize total return by investing primarily in a diversified portfolio of equities and debt securities to provide return of capital growth and current income.
Portfolio Structure
Under normal market conditions, this tailored portfolio will invest 60% as equity investments and 30% into medium term bond. The portfolio will primarily invest in companies of various market capitalizations including common stock, preferred stock, convertible securities with a greater portion and not more than 10% will be invested into alternative asset class such as private equity funds, warrants or rights. Companies are not restricted to regions and are open to stocks in the international market to enhance diversification and greater exposure control when market condition changes in different countries. Target region should be at least three different countries apart from Australia but it will not considered as a mandatory constraint.
Portfolio Main Investment Risk
Equity Market Risk. Prices are not return guaranteed return securities and are subject to fluctuation base on changes in the broad market or the company’s financial condition.
Foreign Securities Market Risk. Foreign equities are expose to additional risk compare to domestic stocks including political, economic, currency fluctuations, transaction costs risk etc.
Derivatives Risk. Alternative asset class are classified to pertain greater risk than fixed income securities or general equities. The choice of dynamic trading with warrants, rights are contractual vehicles and leverage is usually associated. This may be risker than other types of investment and has a greater volatility.
Portfolio performance
The following graph is a similar portfolio with the choice of domestic and foreign equities with a combination of equities, derivatives in domestic and foreign countries. Only difference is the incorporation of bonds. This difference tends to drive down the return/risk proportionally to the amount of money invested in medium term bonds after minus off the coupon interest payment adjust under the same investment period.
                                    Source: JP Morgan (Asset Management) – Variable Insurance Portfolio
An indication to risk investing in a similar portfolio, it shows the average annual total return over investment years. During the most recent fiscal years, the portfolio has an average turnover rate of 12%. After adjusting to the portfolio tailoring for Mr. Armstrong, a return of 9% on average is the expectation. On top of investment conditions, greater liquidity control for any unexpected needs is covered with the ability to reduce holding amount or having active hot instalments to increase total investment but subject to dilution of prices or differing coupon rates for future instalments.
Mrs. Marie Armstrong
Risk Profile Score: 130 (Cautious)
Cautious investor seeking a combination of income and growth but remain in a low risk environment. Higher weighting in passive investment assets and incorporate moderate growth investments. Allows limited short-term volatility.
Portfolio Objective
Structuring a portfolio focuses on purchasing a basket common stocks and real estate investment trust (REITs) seeking for a moderate capital appreciation and generates income.
Portfolio Structure
Under normal market condition, this portfolio will invest at least 80% in equity securities of corporations that regularly pay dividends including common stocks, debt securities and convertible preferred stocks. Mostly large capitalization with healthy financial background and; real estate investment trust with a characteristics tend to offer higher yields but relatively stable as it links to a highly liquid method of investing in real estate and futures can be used to enhance gains in targeted exposure from the opening position to prevent down falls. Hybrid REITs will have a priority as it tends to provide greater stability combining mortgages and housings.
Portfolio Main Investment Risk
Equity Market Risk. Prices are not return guaranteed return securities and are subject to fluctuation base on changes in the broad market or the company’s financial condition.
Strategy Risk. An undervalued stock may decrease and does not increase in price and falls below investor anticipation if the fundamental outlook turns sideway and other investors do not recognize the company’s value and dividends does not payout as schedule and the delay of payout extends beyond the invested period, however it will reflect on the stock price if earnings are retained.
Real Estate Security Risk. Investment in real estate securities subjects to the same risks as direct investment in real estate and mortgages and the value will depend on the underlying real estate interest, the actual popularity of the properties. Risk of default on mortgages such as the sub-prime mortgage crisis or increase interest rate are also risks need to recognize.
Portfolio Performance
This graph provides an indication of risks investing in a similar fund and usually investors who wish to engage in such an investment vehicle will purchase a type of equity income fund that has similar characteristics. This fund performed with a 13.44% YoY and 3.7% based on the average of the previous 5 years which a substantial lowered in return was amount to the global financial crisis in 2008. Other than that, an average return would confidently brings to a level at least overriding inflation.
Priority 2 – Want to protect ourselves financially if Stuart suffers a heart attack in the future.
Target Goal: Adds $130 a year or $10.95 per month (This figure is from the product disclosure statement) in expenses
Time: Now
Data Source:
Figures from http://www.hcf.com.au/product/lifeproducts/GetQuotation.aspx
Since both Stuart and Marie ready have private health insurance with HCF, it is recommended that Stuart gets Trauma insurance cover with HCF to protect his family in the event he suffers a heart attack.
Assuming that Stuart gets HCF trauma cover as a 31 years old male to insure a sum of $25,000, his premium will amount to 2.50 per week.
1 year: $130
Priority 3 – Overseas holiday in four years
Target Goal: $15000
Time: 4 Years
Source of Data:
Page 6 Fact find
Considering the amount needed and the entrance cost for most portfolio, general medium term OTC debt securities are sufficient to meet the objective because most medium term instruments have higher rates than shorter terms and allow ongoing savings to build up the capital and earn a compounding interest under an annuity basis. Government or corporate bonds are usually the common vehicles and based on the risk appetite of the couple, corporate bond seems to be the appropriate vehicle. Corporate bond is a type of debt to finance the liquidity need of that company and the rating determines the quoted interest/coupon rate; greater the bond rating, lower the coupon rate.
An alternative recommendation is to include this $15000 into the portfolio invested in priority 1. Based on their similar duration and criteria, it is adequate to combine the two considering if the income level and targeting amount is larger at a level allowing the formation of a portfolio, similar recommendation of priority 1 is adequate to incorporate.
Priority 4 – Save money for Hannah’s high school education (in 9 years’ time)
Note: It is stated that they would only save for this using money left over after all other uses.
Target Goal: $205173
Time: 9 Years
Source of Data:
For Botany Private High School (Not Real School)
Using figures from http://www.exfin.com/private-school-costs
Basing on Sydney Gramma School fee 12 tuition: $30240
Assuming continuous 4.9% increase per year.
All figure rounded to the nearest dollar
1st year: 30240
2nd year: 31722
3rd year: 33276
4th year: 34907
5th year: 36617
6th year: 38411
Total: 205173
Portfolio Objective
To achieve a diversified portfolio appropriate for the planned duration and includes a characteristics to more conservative when commencement date approaches. The goal is to maximize return potential in early years and reduce risks to protect capital and generate income when college commences.
Portfolio Structure
This is taken from the current investment scheme offering by J.P. Morgan Chase Co. with an investment design for high school costs. Under normal market conditions, 43% of the funds will invest in Larger Capitalization Equity, 19% on international equity and 10% on core fixed income securities. These types of asset classes are chose to strengthen the stability during the early years of investment with the incorporation of asset classes with greater risk-return. The portfolio mix will alter into more conservative at later investment period and risker asset classes will distribute into securities with greater stability and stronger financial background.
An alternative recommendation is shown by the above picture displaying the magnitude of cost savings among a lump-sum investment versus annual investments. Essentially to entitle a greater savings, greater the amount invested at time zero will have a greater cost saving taking into the account the time value of money. Feasible adjustment is recommended if change in lifestyle or housing quality have the tendency to free up capital for this objective purpose. However, this report is adequately calculated based on an annual payment scheme with the consideration of proportionally balanced weights on each priorities.
Priority 5 – Marie wants to get her super sorted this year
Target Goal: 0
Time: Now
Other Calculations:
Financial Goals
Target Goal (House Deposit): $200000
Target Goal (Holiday): $15000
Target Goal (Education): $205173
Total: $420173
Stuart: 78000
Marie: 90000
Total income in a year: $168000
Annual Surplus: $31200
Housing Deposit Goal:
The housing deposit consists of 47.59% of the total financial goal amount. Thus 47.59% of the surplus which is $14848.08 should be dedicated to this goal.
Holiday Goal:
The housing deposit consists of 3.57% of the total financial goal amount. Thus 47.59% of the surplus which is $1113.84 should be dedicated to this goal.
Education Goal:
The housing deposit consists of 48.83%of the total financial goal amount. Thus 47.59% of the surplus which is $15234.96 should be dedicated to this goal.
Under the financial structure of Mr. and Mrs. Armstrong, an estimated value upon the age of 55 amounts up to 500,000. As stated in the objective section, a rollover of all income-savings investment vehicles including superannuation and up to future date of holding portfolios are scheduled to rollover into an investment linked insurance product, Wealth Preserver. This vehicle provides a variable interest receivable under fixed intervals whilst combining a life and health insurance for the protection of wealth distribution to dependents and provides an ongoing medical coverage and to finance any short term liability or expense.
At the age of 55, a new personal investment objectives are as followed:

Personal / Investment Objectives


Personal insurance planning
Want to protect ourselves financially if
Stuart suffers a heart attack in the future
Short Term
I want to make sure my family is financially secured if I die unexpectedly.

Superannuation planning
Marie wants to get her super sorted this year
which means to her:(1) getting advice to help choose one of her existing
super funds and rolling the others into it to make it
easier to manage and review and
(2) Having her balance invested in line with Marie’s
conservative view of investment because she doesn’t
feel comfortable with the default investments she
currently has because she didn’t choose them and
(3) replace her existing insurance levels in super so
Marie doesn’t lose the levels of insurance she already
has because she’s the primary income earner.
Short Term
I would like to combine my super funds.

Debt management
Pay off credit cards and car loan as soon as
Short Term
I’d like to pay off my debt sooner.

*The transformation from old to new financial structure recognizes the objectives back to short term in order to minimize mismatch between investment periods and prevents the scenarios of holding idle cash for market timing reasons.
Mr. and Mrs. Armstrong are expected to place an amount of $500,000 into an investment linked insurance product, Wealth Preserver.
Minimum entry amount: 1 Million Cash/Bank recognized highly liquid assets
Meets Health Condition Policies
Two parties: Insurance Company and its partnering Private Bank
Step 1
Account: Opens a private banking account with 1 Million Face Value
Step 2
Invest 1 Million into Private Bank recognized Asset Class:
Bonds: A to A+ Category
Blue Chip:
Funds: A to A+ Category
Step 2
If health conditions are satisfy with insurance company. An agreement of an insurance policy is established with the value usually equal to his private bank account (not including any other funds for other purposes). This policy will now worth a value of $1 Million recognized by the partnering private bank. Insurance company will now pledge this policy to private bank and seek a fee of $1 Million. At this stage, Mr. and Mrs. Armstrong are liable to private bank not insurance company.
Step 3
To settle this amount without the cost paying anything at the point when contract establish: Private Bank will now accept and release a revolving credit for Mr. and Mrs. Armstrong. The amount would be usually 80% of the 1 million (surrender value) insurance policy and also, another revolving credit loan on the $1million worth of securities Mr. and Mrs. Armstrong purchased, (90% of the $1Million in this case) upon his own will of withdrawing.
Step 4
80% = $800,000 (from insurance policy)
The client needs to use an amount from the 90% to settle the remaining $200,000
And the remaining credit is free for client to loan when necessary.
Step 5
The client is now charge with an interest for the loan of $1 Million.
To cover the charge with having the client to pay no additional cost, recall $1Million worth of bonds purchased at the beginning during the open account process. Also, the insurance policy guarantees the client with a fixed interest for the first three years and variable thereafter. Key to note, the rate of loan interest will be greater than interest receive as an investment but, loan interest is calculated with a capital of $1Million and interest income is calculated from the combination of $2Million (Bonds plus insurance guaranteed interest). Hence, with an example of 4.75 loan interest and a 2.35 interest income; it will offset each other and potentially brings the client an interest income.
1. Guaranteeing Private Bank to release a Revolving Credit Line
2. To obtain a variable interest under fixed intervals
*No alternative asset classes as objective is to receive fixed interval interest, not requiring risk diversification at this stage
Insurance policy has a high surrender value with a ratio of 1 to 2.5/3 subject to age.
Secure the transfer of wealth to future generation.
Minimizes exposure to market risk.
Analyzing the need of insurance, an essential procedure would be analyzing the client’s current and objective stage of life cycle in order to measure and perform a promising risk management and assign suitable insurance products that suit clients’ need at a particular life stage to manage risk. Idea behind is to secure the need for future unexpected needs of funds. Also to protect the expense of medicare, private ahd public, general insurance.
Risk management: Eliminate risk or provide finance to meet consequence or transfer (Insurance Liability)
Insurance consists of Life (premature death, disability, income protection, work compensation), health (public/private) and General (home and content)
Reason to choose insurance is the minimize the potential caused by unexpected incidents follow with unexpected consequences.
Insurance is the coverage for the client and not only the client, but also affect people who depend on the client’s income as well as the change of life to the affected individuals. Hence, different stage of life cycle generates different needs for the clients and their dependents.
If insurance amount is not adequate, consequences will directly affect the client’s dependant.
Heritage over ride the multiple Approach, over ride the investment interest rate by far.
Needs Approach, if needs are higher, then it is not measured, if needs is less than there should be adequate protection.
Always need to conside the change of living expenses of dependants.
Current resources section would be the heritage
Premium is the 1 million and the waiting period
Insurance Policies – TPD total and permanent disablement
Income protection insurance
Business overheads in surance
Medicare and private health insurance
Cover up to 75percent of insured pre-disability income
Benefit period: one, two five years
Lifetime health cover initiative – increase premium by 2% after 30
Through life insurance
Wealth Preserver
High life insurance protection and a guaranteed 4.5% return.
If 50 age, 1:2.5 to 1:3
Premium financing, HNI, cash value, surrender value (
Single premium, surrender value up to 80%. Because of its high surrender value, it is able to deposit it to the bank and loan.
But to release liquidity and
Use the one million to buy bonds or securitites.
Rewarding loan credit line, at least 1
0.8 to 1.3m
800000 value of this contract, and also, 90%
Once insurance company accepted and release the contract to the bank as a guaranteed
Surrender value of If 50 age, 1:2.5 to 1:3. Around 1m to 3m
If age is lower, ratio is higher
Bank will loan 720000 from the 800000.
The 28000 will come from 1m purchased and also is able to loan from 80% of 1 m. Means there will be 80000 ready to loan when necessary.
Opportunity cost is the interest from
Quality company, so the bank is secured to loan the amount up to 90% of the surrender value. Risk here is whether the company has the ability to meet its liability requirement.
If bad quality, it is still okay but the client will subject to higher interest rate.
The bank,
Objective short-medium-long constraints
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