Question

You are the manager of an investment fund. Your job is to advise clients on what portfolio best suits their needs, given their characteristics. You have four different client types.

I. A 23 year old woman (Vanessa), who has just begun a long and hopefully successful career as a nurse.
II. A couple (Eddy and Eliza), both 41 years of age and have two young children. Both earn high incomes and wish to retire at the age of 60.
III. 64 year old Jurgen, who is hoping to retire from work over the next 12 months after COVID-19 stripped away the biggest achievement of his career.
IV. The retired Fergie, who at the age of 75 has been retired for a period of 10 years.

You can choose to offer any one of the following four portfolios to each of your clients. Portfolio Assets Allocation
Alpha 90% shares, 5% property, 5% fixed interest (cash)
Beta 60% shares, 20% property, 20% fixed interest (cash)
Gamma 20% shares, 30% property, 50% fixed interest (cash)
Delta 0% shares, 30% property, 70% fixed interest (cash)

Answer 1

I. Venessa - Beta 60% shares, 20% property, 20% fixed interest (cash)

Venessa is young and can stay invested in the market for a long term. Hence she can afford to put majority of her investment in Shares. She has job and hence does not need a fixed income from her job. In order to diversify her portfolio, she can also invest a part of her savings in property and fixed interest.

II. Eddy and Eliza - Alpha 90% shares, 5% property, 5% fixed interest (cash)

As the couple earn a high income they can afford to invest in a risky portfolio which has upto 90% in shares. As they still have 20 years till retirement, they do not need to invest much in fixed interest securities.

III Jurgen - Gamma 20% shares, 30% property, 50% fixed interest (cash)

As Jurgen plans to retire in 12 months, he must invest his money in security which will ensure steady source of income after retirement. He can continue to hold part of his portfolio in Shares and Property which will help in growing his corpus in medium to long term.

IV. Fergie - Delta 0% shares, 30% property, 70% fixed interest (cash)

Given his advanced age and lack of fixed source of income, Fergie must invest in low risk portfolio. Investing majority of the fund in fixed invoice will enable him to cover his expenses. There should be no investment in shares as they reuqire a long term horizon.