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• Discussion of investment opportunities

Case Study Information

Sarah Jones has been referred to you by a friend as she needs some assistance to sort out her investments and superannuation accounts. During your initial meeting, Sarah provides you with the following information about her current personal situation and financial position.

Sarah turned 52 years old in June 2020. She separated from her husband of 20 years in 2015 with their divorce and property settlement being finalised in 2017. Sarah is enjoying her new "single life" and has no family to support financially. She is also not looking for a serious relationship at this point in her life and wants to set things up to ensure she is financial independent. Although COVID has caused some issues with how she works, Sarah's employment is secure and she currently earns a good salary of $85,000 plus employer superannuation contributions working as a practice manager for a larger medical surgery.

She owns and lives in a townhouse in Oatlands, which was bought when she separated from her husband. She purchased this property in 2016 for $455,000. Sarah believes the property is worth approximately $520,000 today as one of the neighbours sold their unit in August for that price. Although she needed to take on a mortgage to buy the property, Sarah repaid this amount in full when the financial settlement with her exhusband was finalised. There is currently no mortgage on this property and Sarah takes great comfort knowing that in the worst case scenario she owns her own home and will have a place to live. Sarah has her personal contents insured with GIO, with cover in place for $110,000. The building is insured through the strata.

Before he died 6 years ago, Sarah's father gave her a Pro Hart artwork, which he said "would be worth millions one day". The last time Sarah got the painting valued, she were told it was worth somewhere between $5,000 and $8,000. Sarah does not really see this as an investment and just has it on her lounge room wall as a memory of her late father. Friends have suggested looking at buying more artwork as an investment opportunity.

Sarah is quite concerned about debt although she has a credit card, (limit $10,000), which she uses to pay all of her living expenses to take advantage of the frequent flyer points. She has an automatic debit set up to ensure this is paid off each month before having to pay any interest.

Sarah's car is an 8 year old Toyota Corolla, which is insured comprehensively for $6,500. Sarah would like to buy herself a new car and thinks there should be some bargains due to the current economic conditions. While she is not yet sure what sort of car she will buy, she does think she will need to spend about $60,000 in total. She was also planning an overseas holiday in 2021 and intended to spend about 2 months travelling around Europe. Although currently still in the planning stage, Sarah thinks she will need about $30,000 to cover all her costs for this holiday. Due to the current travel restrictions she thinks she may need to defer this trip until 2022 or 2023.

One of the main reasons that Sarah is seeking advice from you is that her last surviving family member, her sister, recently passed away and as Sarah was the sole beneficiary she will inherit substantial funds from her sister's estate. Sarah expects to be receiving $370,000 after all the estate expenses are accounted for and has been told the funds will be available in October or November 2020. Sarah is not sure what to do with these funds when she gets them. She has been considering an investment property but is not sure if that is an appropriate investment option as she has read recently that property prices have been falling.

Sarah keeps about $10,000 in her every day bank account so there is cash available if needed, as well as holding a further $25,000 in a 3 month term deposit with the Commonwealth Bank that she just les rollover for another term each time it matures. The interest is paid to her normal bank account each maturity and the current term deposit has an interest rate of 0.65%pa.

Since paying off the mortgage, Sarah has used any spare funds from the divorce settlement and savings to build a share portfolio. Sarah admits she knows very little about shares and has really only bought shares in companies she knows. She is adamant about avoiding shares in any business involved in gambling. The one piece of advice she did follow was provided by a workmate who told her to buy ten (10) different shares to make sure they have a diversified portfolio. Sarah's portfolio currently includes the following:

490 BHP Group (BHP)

320 Commonwealth Bank (CBA)

2,600 Insurance Australia Group (IAG)

560 National Australia Bank (NAB)

1,900 QBE Insurance (QBE)

640 Suncorp Group (SUN)

6,000 Telstra (TLS)

400 Westpac Bank (WBC)

490 Woolworths (WOW)

500 ANZ Bank (ANZ)

Last year Sarah read about a new investment and although not really understanding it decided to "have a go" and invested $10,000. She has received a holding statement which shows she has 8,000 units in the Pengana Private Equity Trust. It says this investment is listed on the ASX with a stock code of PE1. She has not really had time to see how it has performed and is not really sure if it a share or some other form of investment.

Sarah has not been a big believer in superannuation, mainly as she does not really understand it, and just lets things continue as they have for some time. She has two superannuation accounts - one her employer pays into and the other one that just "sits there". She would be happy to look at doing something with super if it is worthwhile and would be happy to discuss any suggestion you might have. She would like to better understand the tax benefits that she has heard superannuation has.

Her current employer pays into the Australian Super Balanced option. When Sarah looked at the account online to prepare to meet with you, it showed a balance of $164,325. The other superannuation account is left over from a previous job, which she left a number of years ago. This account is with HostPlus Super in the Shares Plus option and has a current balance of $98,212. Asset allocations of these super funds can be located from each of the fund's public websites.

As Sarah is single, she does not see the need for large amounts of personal insurance cover. She does have the default insurance cover for Life and TPD in the Australian Super account which provides $50,000 for each option. Sarah has put in place personal income protection to ensure she has an income in case she was to fall sick or is injured and this will provide 75% of her current salary until age 65 if she becomes eligible to claim benefits under this account. This cover is with MLC and provides a benefit after a 1 month waiting period.

As Sarah is earning a good salary and can easily cover living expenses, she is not in need of additional income from investments. While not a top priority, Sarah would like to structure her investments to take advantage of any tax advantages that may be available.

You have completed a risk profile with Sarah and the result was that she is effectively a BALANCED investor. She wants a good return on her investments, but does not want to take a lot of risk. Your licensee has provided risk profile definitions, research and recommended asset allocations for three (3) different risk profiles which can be found below

Conservative

Balanced

Growth