12/6/18
Investment Portfolio for Sophie
By Jack Smales – Financial Adviser
Year 9 – Commerce Assessment – Personal Finance
Overview
Our Recommendation –
As your financial adviser, I have been researching and finding different properties and companies which I believe you should definitely invest in. In the portfolio, I have recommended how you should spend this one million dollars and have taken into consideration that you would like a diversified portfolio, as well low risk investments. I have found a property, as well as companies in which I believe you should purchase shares from, as well as putting an amount of money into a term deposit.
Property
Our Property Investment:
Apartment –
Price – $685,000
Location – 105/100 Fairway Drive, Kellyville NSW 2152
Features – 2 Bedrooms, 2 Bathrooms, 1 Parking Spot, Ensuite, Air Conditioning
Purchases and Cost;
$685,000 (spent on the apartment)
$26,315 (spent on stamp duty)
$139 (spent on transfer fee)
Total Cost on Property – $711,454
Why this Property?
The reasons which this 2 bedroom, 2 bathroom apartment is our recommendation is because of its great location, features, and flexibility for the different families and couples which this apartment can accommodate for.
Firstly, this apartment not only is located in a great block, but its location is perfect for many different families and couples. Near this apartment there are multiple bars and restaurants such as Il Lago Italian, Trevi Lakeside, and the Castle Hill Tavern and RSL. Nearby are also multiple schools, both primary and secondary, as well as public and private. These schools include; William Clarke College, and Kellyville Public School.
Furthermore, this apartment has some great features, as well as the complex have some extra features and benefits for the tenants. These features include; a luxurious ensuite, a spacious outdoor balcony, air conditioning, indoor swimming pool within the complex, as well as a gym.
Thirdly, this apartment is very flexible and will be great for a variety of different families due to its location, bedrooms, and nearby restaurants, schools, and activities. This apartment would be great for couples with no children, or couples which their children have moved out and therefore they do not need as much bedrooms and space. This apartment also is great for couples with one child or even retirees.
These points are all positives and benefits of buying this apartment, which therefore minimises risk for finding tenants and starting your income from this rent. This benefits you as the owner as you have asked for low risk purchases and spending of this money.
Annual Ongoing Cost and Expected Rent and Annual Return on Property
Ongoing Costs Include –
Strata Fee – $700 per annum
Council Rates – $,1430 per annum
Insurance – $429 per annum
Water Fees – $250 per annum (water usage is paid by tenant)
Expected Rent –
Weekly Return – $600 per week
Monthly Return – $2,600 per month
Yearly Return – $31,200 per year/annum
Expected Annual Return –
The expected annual return is approximately $28,391, as we must pay for the ongoing costs of the apartment and this therefore decreases the amount in which is being received from the rent.
Shares
After purchasing our apartment and spending money on other fees including stamp duty, we have a remainder of $288,546 of the original one million dollars. I would recommend spending $90,000 of this remaining money on shares.
You stated you would like a diversified investment portfolio, and you would like not much risk. After taking this into consideration I would recommend investing into multiple companies and buying shares from these companies. By investing into multiple companies we are able to receive income from multiple companies if they are all or few or successful. However if one company is unsuccessful it is not as if we have ‘put all our eggs in one basket’, and we can receive income from shares, from the other companies which we have invested in.
The companies which I would recommend investing and buying shares from are; BHP and Wesfarmers.
BHP
BHP, also referred to as BHP Billiton, is an Australian mining, metals, and petrol company. The company is based throughout Australia in locations such as Melbourne and Victoria. BHP is one of the world’s largest mining companies and is involved in the processes of mining, transporting, and engineering of different materials such as iron, copper, and steel.
Wesfarmers
Wesfarmers is an Australian company, based in Perth and Western Australia. The company’s main interests predominantly consist of chemicals, fertiliser, coal mining, and industrial safety products. Starting in 1912, the company has now grown into one of the largest Australian companies.
Purchase Cost and Share Amounts –
BHP –
Money spent on shares – $45,000
Share price – $34.07
Shares purchased – 1,320
Commision Rate (2%) – $900
Dividend Yield – 3.63%
Wesfarmers –
Money spent on shares – $45,000
Share price – $46.36
Shares purchased – 970
Commision Rate (2%) – $900
Dividend Yield – 4.81%
Total Cost on Shares – $91,800
Expected Annual Return –
BHP Return – $1,632.50
Wesfarmers Return – $2,163
Why BHP and Wesfarmers?
BHP
BHP is a company which I most definitely recommend investing in. BHP is one of the world’s leading producers of resources such as copper, iron ore, and coal. Based in Australia this company values and encourages their employees, to support and continue performance and growth of the company, as stated in their website. This provides us as possible shareholders that the company is looking for growth and consistent performance. This is definitely a positive for investing into this company. According to ‘businessinsider.com.au’, in 2017 BHP was ranked 4th in top Australian companies with a revenue of 39.1 billion dollars and had risen from 8th place. The site also states that BHP had ‘been driven by strong performances in the Oil and Gas Extraction, Black Coal Mining, and Iron Ore Mining industries.’ BHP also currently has 3.63% dividend yield. Not only do these statistics show great performances and consistency in the company, share prices have been rising which could be due to the increasing demand in shares being bought for the company.
Overall, I strongly suggest investing into BHP as statistics and information show that this company is consistent with performances, and growing into a profitable company, which benefits you as a shareholder.
Wesfarmers
Wesfarmers is an Australian based company, which I also strongly recommend investing in. This company specialises in chemical, mining, and safety products. By having a diverse business it allows them to have a larger market which they can sell their products to, this includes; supermarkets, hotels, and convenience stores. Another reason to invest in this company is its impact on the environment. The company explains in their website that they aim and focus to minimise their environmental impact and reduce their emissions, This is a positive for shareholders as buyers may be more interested in purchasing products from companies that are aware and aim to be more environmentally friendly. Wesfarmers also was ranked 1st by ‘businessinsider.com.au’ for 2017 and previous years will the highest revenue.
This table shows that Wesfarmers earned a total revenue of 68.7 billion dollars. Not only is this a plus for the company, but for shareholders as well, as this revenue could include profits which then is shared out in dividends. Therefore Wesfarmers is a company which I strongly agree you should invest in, due to its previous years performances, large market which the company can sell their products to, and high revenue.
Term Deposit
After purchasing our property and shares, we now have money left to put into a term deposit. The remaining money of the one million dollars is $196,746, I would recommend putting all of this money into a term deposit.
After looking into multiple banks and finding their individual rates, I have found two options, however one of the two I personally prefer and recommend.
The first option is a 12 month term deposit with the National Australian Bank. NAB has the highest interest rate for a 12 month period, with a rate of 2.4%. This is a safe and smart option, which over the 12 month gradually accumulates money.
The second option, which I recommend is a 24 month or 2 year term deposit with the Commonwealth Bank. Commonwealth Bank has the highest interest rate with a 2.7% rate.
Why This Term Deposit?
I strongly believe that you should invest your $196,746 into Commonwealth Bank, on a 2 year term deposit. The reason for this is that Commonwealth Bank offers a high interest rate of 2.7%, and on a 2 year deposit. This means the money will accumulate more over the 2 years, in comparison to just 1 year. This deposit is also very safe and whilst you are making money through shares and your property this deposit will always be in bank, plus increasing its sum through interest. You have also asked for a diversified portfolio with low risk, and this term deposit is exactly that. With low risk your sum of money will gradually increase, without the need of wondering or waiting if you will or will not make money.
Expected Return from this Deposit –
Bibliography
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