Paul is 35 years old and is a self-employed psychologist. He has a wife, Ella, and three children, aged three, four and six. Since the children were born, Ella has not worked. Paul earns $250,000 per year and they own their own home. Paul is concerned that his only wealth strategy is superannuation, and he believes this will be insufficient to meet his and Ellas needs because he would like to retire at age 55.

Required:

A. Paul has suggested taking out a mortgage on the family home of $500,000 (the house is valued at $1,685,000) and investing it in European equities which he has heard have high returns. What would you advise Paul?

B. Provide a balanced argument based on a review of the literature relating to the usefulness of risk profile.