Michael is 20 years old and currently studying at university. He works part time as a waiter and saves $210 per month from his wages. Michael has so far saved $5,000 with the aim of reaching $10,000 to go on holiday in two years' time once he has finished his degree. You a risk profile questionnaire with Michael and determine that he is a conservative investor. You are considering the following investment options for Michael (note all investment returns are per annum and net of fees, where relevant):

REQUIRED

Recommend a suitable investment option for Michael to save for his holiday. Justify your recommendation and provide one disadvantage with your recommendation.
If Michael was a growth investor, would this change your response to (a)? Justify your answer.

 

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Savings account: 1.1% Term deposit & bonds: 30 days 3 months 6 months 9 months ● Australian shares: 7.5% International shares: 8.1% Managed investment scheme – diversified funds: Defensive fund O O Conservative fund Balanced fund Growth fund O O O High growth fund ● ● ● O 0 0 0 0 0 0.30% 0.95% 1.00% 1.00% O Managed investment scheme – single sector funds: O Cash fund: O Government bond fund: O 12 months O 15 months O 18 months O 2 years (90% defensive, 10% growth assets): 2.2% (70% defensive, 30% growth assets): 3.6% (40% defensive, 60% growth assets): 4.8% (20% defensive, 80% growth assets): 5.9% (10% defensive, 90% growth assets): 7.3% Fixed interest fund: Australian property fund: International property fund: Australian share fund: International share fund: 1.65% 2.95% 1.05% 0.90% 0.90% 1.10% 2.8% 4.5% 4.7% 7.5% 8.1% Savings account: 1.1% Term deposit & bonds: 30 days 3 months 6 months 9 months ● Australian shares: 7.5% International shares: 8.1% Managed investment scheme – diversified funds: Defensive fund O O Conservative fund Balanced fund Growth fund O O O High growth fund ● ● ● O 0 0 0 0 0 0.30% 0.95% 1.00% 1.00% O Managed investment scheme – single sector funds: O Cash fund: O Government bond fund: O 12 months O 15 months O 18 months O 2 years (90% defensive, 10% growth assets): 2.2% (70% defensive, 30% growth assets): 3.6% (40% defensive, 60% growth assets): 4.8% (20% defensive, 80% growth assets): 5.9% (10% defensive, 90% growth assets): 7.3% Fixed interest fund: Australian property fund: International property fund: Australian share fund: International share fund: 1.65% 2.95% 1.05% 0.90% 0.90% 1.10% 2.8% 4.5% 4.7% 7.5% 8.1%

Answer rating: 100% (QA)

Answer Given Michaels conservative risk profile and his shortterm goal of saving for a holiday in two years its important to prioritize investments wi... View the full answer