Real Case: Investing Compensation Funds
Mark – personal injury compensation - needing to provide long term supplementary income to compensate for Mark's lost income earning capability, for Mark and his family ...
The Client and His Circumstances and Requirements:
Mark is a young man who was injured in a sporting accident which left him with a disability.
He was subsequently awarded a large compensation payment, which he needed to use to augment his income needs and to grow for long term future lifestyle and independant living requirements.
He also needed to retain as much of Australian Commonwealth Government Benefits as he was entitled to - because he has many years to live and cannot work at the moment.
He wanted to know how to invest his funds in a way that was:
- Tax effective
- Benefit Effective
- Allow access to a small income stream to supplement Government Benefits now,
- Allow access to capital which may be needed from time to time, but
- Enable long term caital growth
- Invest in a relatively careful way as he can't replace this capital which he needs for independant living in the longer term.
The Asset Markets:
Mark’s portfolio is one that needs to be managed very carefully, as it has to last him the rest of his life (Mark is still in his 20’s).
It needs to produce regular income, yet without taking on large amounts of risk to his capital.
However returns on cash and term deposits are at historic lows.
The Portfolio Advice and Management:
As such, around 35% was invested in quality shares and property trusts, and around 65% in what are known as defensive assets such as income securities, term deposits, and cash.
The specific asset used and the timing of their purchase, changes to the portfolio through the year - were undertaken based on our advice and with Mark's authorisation to produce a very good risk adjusted return within the moderately defensive asset allocation we recommended.
A total gross return in 2013 of 10.86%, including imputation credits.
The moderately defensive asset allocation, along with using only high quality assets, kept his overall risk and volatility low.
Whilst interest rates were low, higher dividends and capital growth on our share selections helped boost the overall return.