Jenny is aged 65 and is about to retire in a few weeks from now. She is currently single, healthy and would like to continue living in her home, which she owns with no debt. She has $800,000 in superannuation and would like to draw a regular income from an Account Based Pension of about $40,000 per year when she retires to cover her living expenses. She is experienced and comfortable investing in shares but feels as though she would like to enjoy her retirement without having to fear that a stock market crash could wipe out all of her retirement savings but recognises she must still keep some of her superannuation invested in growth assets so that she doesn’t run out of money.

Which of the following asset allocations is MOST appropriate for her superannuation based on the examples provided in the lecture material:

Joshua is aged 30. He needs a minimum account balance of $5,000. He has $10,000 in savings set aside to go holidaying in Europe in about 1 year from now. He would like to have $15,000 set aside as emergency funds in case he loses his job or has unexpected expenses. He would like to buy a property in about 6 years from now and already has $40,000 in savings set aside as a deposit. His parents cannot act as guarantors on his home loan. He understands the risks associated with investing in shares.

Which of the following asset allocations is MOST appropriate based on the examples provided in the lecture material:

Which of the following statements about asset allocation are TRUE:

1. If you have savings set aside for a new car that you expect to purchase 2 years from now, it is appropriate to invest these savings into shares because the expected returns are higher than investing the funds in a savings account.
2. There are numerous factors that need to be considered when formulating an asset allocation, including investment time horizon, risk profile, life stage, investment goals and the level of financial literacy and experience.

An investor tells you that they believe that the residential property market is currently at a peak and that the share market is relatively good value. They have two properties and have decided to sell one of them and invest the funds into a diversified portfolio of shares. They tell you that they will likely take profits from the share portfolio in a few years and buy another property once the property market starts to perform better. Which of the following asset allocation strategy is the investor MOST likely using:

Which of the following statements is MOST consistent with the lecture material on the biases associated with Risk Profiles:

Which of the following statements about the ‘Risk Profile’ section of the lecture material are TRUE:

1. An individual who feels as though their basic physiological and safety needs are not being met are more likely to be more risk-averse.
2. Understanding your risk profile can help you become more educated about risks and your likely reaction to risks. Your risk profile can also limit the investment strategies that a financial adviser is able to recommend to you.

Which of the following statements about the ‘Longevity and Sequencing Risk’ section of the lecture material are TRUE:

1. Longevity Risk refers to the risk that you will outlive your retirement savings. Contributing factors include relationship breakdowns and investing either too conservatively or too aggressively.
2. Two investors both have similar $1 million investment portfolios comprised of shares and property investments. They are both working full-time on similar incomes. One is aged 40 while the other is aged 60. Neither has any debt. A significant fall in stock or property prices would have a similar long-term impact on both investors.

Which of the following statements about the ‘Financial Leverage’ and ‘Borrowing to Invest’ sections of the lecture material are TRUE:

1. As long as the expected return on assets is greater than the cost of debt (interest rates), adding financial leverage to an investment magnifies both expected return on equity and also total risk of that equity.
2. An investor has a margin loan on an Exchange Traded Fund that tracks the ASX200 index. The value of the investment (asset) is $100,000 and they have a $50,000 margin loan. If the ASX200 were to suddenly fall in value by 30%, that investor would likely experience a margin call.

Which of the following statements about the ‘Asset Categories’ section of the lecture material are TRUE:

1. ‘Income’ asset categories mainly pay income whereas ‘Growth’ asset categories don’t pay income and so the returns are only from capital gains.
2. When investing in ‘Growth’ assets, it is best to make sure that you have an investment time horizon of at least 5 years. This is because ‘Growth’ assets usually have higher risk than ‘Income’ assets. Investing over longer periods of time can help to manage that risk.

According to the lecture material, the usual order of the mainstream asset categories from lowest risk (and shortest investment time-horizon) to highest risk (and longest investment time-horizon) for an investor in Australia is: