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A. You are an investment adviser. Your client, Alice, is a wealthy friend who has just received an inheritance of $3,250,000. She wishes to place $A250,000 in the bank as spending money and to invest the remaining $A3,000,000 for a period of up to 10 years, with all investment earnings reinvested to maximize the growth of her investment balance.

In an interview with her, you discover that she is age 24 years, single, has graduated in law and after working the next 2 years for a lawyer, she wishes to set up her own practice.

You also discover that at this stage of life she is strongly career oriented. She will rent an apartment for the next 10 years, then hopes to marry, buy a house and raise a family.

You ask: What is Alices investment objective or goal? She seeks an average annual return (income plus capital gain) from a spread of her investments across a range of securities equal to the CPI (the rate of inflation, estimated at between 2% to 3% per annum) plus a further 2% p.a. (that is, a total compound return of 4% to 5% pa). She hopes this would enable her $3,000,000 initial investment to increase in value by 50% at the end of 10 years.

You assess her risk profile as a balanced investor. That is, she is a moderately risk taker when choosing investments, by mixing a base of defensive or relatively risk-free assets (that is, 35% - 50% of her portfolio to be invested in cash, bank deposits or cash equivalents, fixed interest government bonds and high-quality company debentures), with a selection of high quality growth or risky assets (the other 65% - 50% of her portfolio to be invested in equities or shares, and / or real estate including property trusts or REITs real estate investment trusts, and/or valuable commodities, e.g., gold) in the quest for higher returns.

B. Investor Constraint liquidity requirement. Do you envisage any circumstances arising whereby your client may require to cash some or all of her investment portfolio in the next 10 years? State two such circumstances or events which could cause her to cash some investments. What would be the effect on her investment goals?

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