Portfolio Construction and Review: The Economic and Investment Outlook at the End of 2019,

Construction of a Diversified Investment Portfolio at that date, and a Review in September, 2020 of its

performance.

Task Details: Imagine that you graduated a year ago, and joined a firm of accountants and investment

advisers.

On 31 December, 2019, a client, Miss Jean Brown, a single lady born on 30 December, 1954 and who

has just retired, seeks your investment advice. She tells you that she owns her own apartment in

Balmain, worth $1,000,000, in which she intends to live for the rest of her life. She has used her life's

savings to pay off the mortgage on her apartment and now has no debts. She also has no income, no

superannuation, no other savings and has no dependants. However, she has just inherited $2,000,000,

which she wishes to invest in a diversified investment portfolio, and seeks your advice on its

construction.

She wishes the portfolio to provide an income of $70,000 a year, which will enable her to live

comfortably in retirement, including paying for an annual overseas holiday. She says she is in good

health and expects to live at least for another 20 years.

After questioning, you assess that she has a moderately conservative risk profile, and wishes to spread

her funds across the four main asset classes of Australian securities, namely, Australian company

shares, Australian listed property trusts (or REITs - real estate investment trusts), Australian fixed

interest securities (Commonwealth and State Government bonds) and Australian cash or equivalents (e.g., cash at bank, Treasury notes, and bank bills). She is willing to invest up to 50% of her inheritance in risky assets (company shares and listed property trusts) and the balance in fixed interest and cash. To provide a measure of diversification, she wishes to invest in three different securities in each asset class. Because of exchange rate and other risks, she does not wish to include any foreign or overseas assets

or alternative investment assets in her portfolio. On her death, she wishes to have, if possible, more than $2,000,000 (plus her apartment) in her estate, which she plans to leave in equal proportions (50% each) under her will to a niece and to the Red Cross (an international charity).

how can I do preparation of a Statement of Investment Advice to Miss Brown, specifying:

- her personal details, her broad investment objectives and goals, and her risk profile;

- the then (at end of 2019) domestic economic (with a focus on economic growth, inflation and interest

rates) and investment outlook (expected returns and risks) for each of the above four Australian asset

classes;

- your recommended investment portfolio, including asset allocation and selected securities, withe

reasons for their selection and how they align with her assessed risk profile (or her ability to comfortably

handle risk);

- the expected annual returns from your selected assets and overall recommended portfolio, along with

the prospects for growth in the value of the portfolio, having regard to her desire in the provisions of her

will;

- the risks relating to your recommended portfolio; and

- a foreshadowing of ongoing monitoring and an annual (or more frequent, if required) review of her

portfolio.

now next we need to embrace a review and evaluation of your recommended portfolio in

September, 2020. It is likely that some at least of your recommendations have been adversely affected

(and possibly some enhanced) by the coronavirus (Covid-19) pandemic and the impacts of government

policy seeking to limit the spread of the virus and the resultant economic and investment outcomes.

This part of your report should include a summary of these effects, a current valuation of the original

recommended portfolio, a review of the income provided by the selected assets, and a discussion of

their suitability for the investor, going forward. Also include reasons for any recommendations for

switching investments (selling some of the original assets and replacing them with new ones, together

with a revised estimate of future annual income and estate size.

NOTE: In your calculations and report, ignore taxes, brokerage and any investment advice regulations.