Hannah Filzah is a 50 years old executive of internal audit for Sime Darby Plantation who just lost her husband to an accident two weeks ago. Her husband leaves her and their two teenage daughters a house, a luxury car and proceeds from his takaful plan that provides a death benefit amounted to RM200,000. After paying for hospital bills and funeral expenses, RM150,000 of the proceeds remains. In addition to that, Hannah has a savings of RM30,000 in her personal savings account and a retirement account amounting to RM250,000.

With the loss of her partner, Hannah is now considering several important decisions of her life. She realized that she has another 10 years before retirement while her daughters, who are currently 15 and 12 years old, are now her priority. Besides takaful, she has never considered any investment for future protection. She now feels that she needs to prepare a clear contingency plan for her daughter in case anything happens to her. In any case, a good investment plan is also required given her daughters are several years away from college life.

After carefully consulting some of her friends and relatives, she estimated that she will need an income of RM 90,000 per year for her daughters education and herself. Considering her family medical background and her current health, she is convinced that she will make it until 70 but not past 75, Hannah believes she needs a good investment plan for 15 years after her retirement.

Hannah prepares four strategies for the investment:

Strategy 1:

• To sell her husband's luxury car and use the proceeds to acquire a more economically friendly family car. She estimates the value of her husband's luxury car is RM200,000. A replacement car could be purchased in cash for RM160,000. The remaining will be used to invest in a start-up business for a honeybee-based company owned by her cousin. Despite a rough start due to the pandemic, Hannah is convinced that her cousin's business would be a success given the fact that her cousin has experience in managing several businesses before.

Strategy 2:

• Hannah is also convinced the return from her saving account is too small and intends to withdraw all her money from the account. She is tempted to use all her withdrawal money to invest in a Redcoin, a newly established digital coin that had an amazing rally for the past two months. Since its inception eight months ago, the digital coin price has increased by more than 80%. Hannah is also convinced because some of her friends are also investing in Redcoin.

Strategy 3:

• From the proceeds that she received from her husband's takaful protection, Hannah aims to create a balanced portfolio consisting of income and growth stocks. Realizing that she is inexperienced and has no knowledge of investment, Hannah plans to hire an expert from a financial analyst and consulting firm to advise her on a suitable portfolio and its allocation.

Strategy 4:

• To withdraw 20% from her current retirement fund (about RM50,000) and invest in an educational fund provided by the government to prepare for her kids' future college expenses. She reckons the return by both funds are quite similar but believes having a fund set on behalf of her daughter s names will smooth the process in any case of her untimely death.

Required:

1. Evaluate each of the four strategies identified above in terms of their risk and return characteristics.

(12 marks)

2. Identify and list any behavioral biases on her strategy that you can find. Explain how that biases could lead to a systematic mistake

(5 marks)

3. Do you think Hannah will be able to reach her investment goals with her current investment plan? Explain your answer briefly.

(4 marks)

4. Provide two recommendations or advice for Hannah to improve her investment return.

(4 marks)