Case Study $$ Emily Thompson

Ms$.$ Emily Thompson, aged $32,$ recently lost her husband in a tragic accident. She

inherited a substantial estate, including investment accounts, real estate, and a life

insurance payout. Ms$.$ Thompson has limited experience in managing her finances and is

seeking guidance on how to preserve and grow her wealth to secure her financial future

and that of her two young children, aged $7$ and $5.$

Emily has worked as an accounting clerk in a small financial advisory firm for $10$ years

after completing the high school study. She does not have a degree as she needed to earn

for a living after her parent had an early retirement due to sickness. She receives an

annual salary of US$$40,000$ from her job.

Before her husband died, the household spending was US$$70,000$ per annum. Emily

expects the spending will be stable in term of present value after her husband died.

Emily and the two children are living in mortgage$-$free residence with market value at

US$$1$ million. There are no debts outstanding for the family. Annual inflation is

expected to be constant at $3\%.$ Both spendings and incomes will be increased at the rate

of inflation.

Emily receives US$$1$ million from her husband$$s life insurance policy. Besides, she has

US$$500,000$ liquid assets $($mainly money market funds$),$ including estates of her

husband. No inheritance tax is charged on the insurance payouts and estate transfer. She

would like to make use of the above assets to generate an additional income stream for

the family. Besides, she would like to study a bachelor$$s degree, if possible, to increase

the employment income in the long term. She has researched her annual salary can be

increased by $50\%$ in present value if she had a bachelor$$s degree.

In term of investment preference, Emily prefers to allocate a significant portion $($around

$30\%)$ of the potential portfolio in sustainable and socially responsible investment. On

the other hand, she is reluctant to invest in derivatives as she made severe loss before.

Requirements:

You, as a financial consultant, are preparing financial advice and constructing

investment portfolio for Emily.

$1.$ Prepare the following sections included in Investment Policy Statement for Emily.

a$)$ Risk profile

b$)$ Investment goal$($s$)$

c$)$ Liquidity requirement

d$)$ Unique circumstance $(25$ marks$)$

$2.$ You are required to re$-$design the portfolio for Emily that can meet her

investment objectives. The investment portfolio will comprise of more than $3$

securities $($bonds$/$equities$/$funds$/$ETF$)$ combined in an appropriate mix to

provide an optimal portfolio for Emily.