Personal Wealth Management Case Study - Semester 1, 2018

This case study provides a financial advisor's analysis of Janet and Steven Blake's personal wealth management situation. It includes calculations of their savings, net income after tax, and savings ratio, along with strategies to reduce their tax liability by claiming allowable deductions. The study also evaluates the diversification of their investment portfolio and suggests improvements by investing in different asset classes and industries, such as infrastructure development and rental property. Furthermore, it calculates the future value of their current investments and determines the additional investment needed to reach their savings goal of $200,000. The analysis uses financial data from 2017 and considers relevant tax legislation.

Running head: PERSONAL WEALTH MANAGEMENT
Personal Wealth Management
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Answer to Question 1......................................................................................................................2
A..................................................................................................................................................2
B...................................................................................................................................................5
C...................................................................................................................................................7

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Answer to Question 1
A
Statement showing calculation of Savings
Particulars Janet Steven Total
Salary $70,000.00 $54,000.00
Dividend Income $770.00 $410.00
Interest Income $230.00
Total Income (1) $71,000.00 $54,410.00 $125,410.00
Rent $33,800.00
Electricity $3,000.00
Telephone $2,200.00
Television $1,100.00
Insurance $1,200.00
Car insurance $3,000.00
Credit cards repayment ($500 a month for 12
months). $6,000.00
Car loans repayment ($8000 a year for 5 year term) $8,000.00
Petrol $6,000.00
Car Register $800.00
Public Transport $2,800.00
Other expenses
Food $12,500.00
Clothing $5,500.00
Medical $2,500.00
Entertainment $6,000.00
Teacher Union Membership (Janet) $1,000.00
Gifts - Birthdays/Christmas $3,000.00
Total Expenses (2) $98,400.00
Net Savings (1-2) $27,010.00

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Statement showing Calculation of Net Income After Tax
Particulars Janet Steven Total
Salary $70,000 $54,000
Dividend Income $770 $410
Interest Income $230
Assessable Income $71,000 $54,410 $125,410.00
Tax Payable $14,622 $9,230 $23,852
Net Income After tax $56,378 $45,180 $101,558
Calculation of Savings Ratio
particulars Amount
Savings $27,010
Net Income After Tax $101,558
Savings Ratio 0.27
The table above shows the calculation of Savings ratio. It is computed by dividing
savings with the net income after tax. It can be seen that the savings ratio is 27%. That means
they are savings 27% of income for achieving their objectives. There are two ways of increasing
savings by reducing expenses or reducing the tax payable. The reduction of expenses can be
difficult because it involves change in lifestyle. Whereas alternatively the savings could be
increased by reducing tax payable by adopting different tax saving strategies.
The tax payable is governed mainly by the legislations Income Tax Assessment Act 1936
and Income Tax Assessment Act 1997. The section 8-1 of the Income Tax Assessment Act 1997
provides that an individual is allowed to claim deduction for expenses incurred in producing the
assessable income. However, it is necessary that the expenses are claimed should be related to

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work. The expenses should be properly documented so that it can be claimed against the
assessable income. Therefore the tax reducing strategy is to claim the expenses after providing
adequate documentation. In that case the revised taxable income will be:
Statement showing Calculation of Net Income After Tax
Particulars Janet Steven Total
Salary $70,000 $54,000
Dividend Income $770 $410
Interest Income $230
Assessable Income $71,000 $54,410 $125,410.00
Allowable Dedication that can be claimed
Telephone $2,200.00
Car insurance $3,000.00
Petrol $6,000.00
Teacher Union Membership (Janet) $1,000.00
Total Deduction $6,907 $5,293 $12,200
Taxable Income $64,093 $49,117 $113,210
Tax Payable $12,377 $7,510 $19,887
Income After Tax $51,716 $41,607 $93,323
Calculation of Savings Ratio
particulars Amount
Savings $27,010
Net Income After Tax $93,323
Savings Ratio 0.29
The application of the strategy of claiming expenses by provide appropriate
documentation has resulted in increase of savings ratio to 0.29. This means the new strategy will
help the tax payer to have more tax savings.

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B
The Diversification of portfolio will benefit Blake in several ways. Some of them
include:
a) Minimisation of the risk of loss-
In case it a particular investment starts performing poorly for some particular period, other
securities may perform well for the same period. Hence, reducing the amount of the loss to be
encountered.
b) Preservation of capital-
It helps in securing the principle or the capital of the investor largely. As diversification can
immensely protect the investor’s savings.
c) Generation of better returns-
As the reliance is not on one source of income it is ensured that, the investor maintains a
minimum rate of return for himself.
The process of diversification involves so reading of risk. The same can be achieved by Blake if
he engages in the following activities:
Across asset classes
i) Invests across different classes of assets, which may comprise of instruments and
securities like cash, fixed interest bearing securities, various properties, and in
domestic and international shares.
Within same asset classes

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ii) Within the asset classes, Blake can purchase shares that belong to the companies
operating across various industries.
As per the present situation the investment portfolio of the Blake’s comprise of only three
primary instruments i.e. a savings account with the bank, an investment in the bond and an
investment in the Macquarie Group Ltd. shares.
It is clearly seen that the diversification done by Blake is not sufficient the reason being that, it
has been tried on their part to diversify across asset classes but no diversification is achieved
within the asset classes. In addition to this, the nature of two out of three investments is quite
same. Thai is the return to be earned from bond fund and that from savings account is quite
similar in nature and the amount. Both are risk free and given minimum returns. Hence, the
possibility of creation of higher returns or value by Blake’s is significantly reduced. For
increasing the value that is being created for them, Blake’s must immediately resort to diversify
their portfolio in an optimal manner. For doing this they will have to take the following steps:
a) Reduce the investment in Macquarie Ltd. shares by $10000 and invest in the shares of a
company engaged in the infrastructural development industry. For e.g. Sydney Airport
Holdings Limited, Transurban Group etc.
b) They should reduce the investment in the savings account and bond fund by $5000 each
and invest in acquiring a property for rental purposes.
In investing in shares of different company, belonging to a different industry will reduce their
subjectivity to the risk of the volatility in the operations of the company and the industry as a
whole. Hence, in case the other industry is doing well they will be able to harp on its benefits.

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If Blake’s acquire a rental property, the returns earned by them on that amount will be higher
than that offered by the company. Hence, it will enable the Blake’s to create value for them this
will result in effective and efficient value creation for them in them.
C.
Calculation of FV of Current Investment
Particulars Amount
Current investment $60,000.00
Return p.a 5%
Period 10
Future Value of Current Investment $97,733.68
Calculation showing Future value of Yearly Savings
Year Savings Amount Future Value
1 5000 $8,144.47
2 5000 $7,756.64
3 5000 $7,387.28
4 5000 $7,035.50
5 5000 $6,700.48
6 10000 $12,762.82
7 10000 $12,155.06
8 10000 $11,576.25
9 10000 $11,025.00
10 10000 $10,500.00
Total $95,043.50
Calculation of Future Value of Investment
Particulars Amount
Future value of Current investment $97,733.68
Future Value of Annuity Savings $95,043.50

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Total Future Value of Investment $192,777.18
The required savings is $200000 but with their existing plan they can save up to
$192777.18. The shortfall can be adjusted by making investment at the current rate of return. The
further investment that will be required to be made is provided below:
Calculation of Further Investment
Particulars Amount
Required Savings $200,000.00
Savings that can achieved $192,777.18
Required Further investment $7,222.82
Current value of the required Investment $4,434.19