Sarah has decided she would like to financially support the education of her grandchild.

Her idea is to make an education investment of AUD100,000 on behalf of the grandchild. It will be a "once off" investment, all of the returns will be re-invested and the amount will grow over time from compounding returns.

When the grandchild has its 21st birthday, the proceeds (original investment plus returns) will be available to help with their university and other education costs.

Sarah would like to make this education investment in the near future (in about 6 to 12 months).

Sarah is not sure about the viability of this plan and has asked you to provide financial advice on several items.

Question 1

Sarah is considering making the proposed education investment in a portfolio of equity securities.The portfolio will contain "blue chip" stocks selected from the ASX top 100 companies.But recently, equity markets have fallen by a large amount and Sarah is nervous about this type of investment.Discuss the issues that Sarah needs to take into account when considering this type of portfolio for the education investment.