Investment Benefits Arising from the Changes - Case Study Example

Investment benefits arising from the changes you have recommended to their portfolio There are several envisioned benefits to be derived from the changes on the recommended. An important benefit is increment in dividends for Denise French while reducing the dividends for David French to zero, this is important in ensuring that only one person maintains investment in Australian Equities, in this case there are several envisioned benefits, such as centralised management of the Australian Equities, to reduce administration costs an related charges since it shall only be Denise French who shall be managing all Australian Equities, hence releasing David to concentrate on other investments. Furthermore, the recommendation shall benefit the Denise French and David French in reducing the taxes payable, reducing the current value of assets under David French ensures that he does not pass the maximum Low Income Tax Offset (LITO) threshold, Woellner (125), hence benefiting from offset since persons earning incomes greater than $63,750, do not benefit at all. The is also the envisioned benefit of ensuring that whereas Denise French absorbs some income from David French, she ensures that her rate of taxation is at a minimum and benefit from maximum Low Income Tax Offset (LITO), in this case her total Taxable Income is $37,000, hence being taxed $4,650, if she could have surpassed the bracket, she could have been taxed at an higher rate. Moreover, the recommendation entails diversifying investment in Australian equities. The concept of diversification has been fundamental for decades enhanced portfolio management since an investment is somewhat of a gamble, Brigham and Houston (263). Adopting a proper asset allocation is a paramount principle. Whereas the diversification may not outline direct benefits in terms of increment in total income, the diversification has the benefit of spread of Risk. By diversifying the David French and Denise French portfolio in terms of investing in increased Australian benefit, this means increment in assets, hence spreading out a bond portfolio to embrace long-term and short-term maturities and corporate issues, moreover, the diversification results to reduction of assets in the bond portfolio and integrating equity position in the cumulative investment portfolio, this is intentioned to decrease the impacts of potential losses in the portfolio such that the risk is essentially spread across different Australian equities, in case of failure of certain equities, there exists other equities which shall mitigate the risk by gaining or improving in value hence ensuring that the resultant effect is an increment of value on the investments, by taking care of risks. Moreover, diversification ensures Multiple Sources of Income. Such that when all the companies that the Denise French shall invest in, performs they shall benefit from diversified sources of income such as interest, dividends and capital appreciation. In this case, different sources of income are imperative, considering longer-term investments where income may be sporadic. Investments in foreign equities dynamically recognize sets of securities with weak correlated returns to accelerate diversification effect. This ensures that the investors can benefit from not only investments and increments of dividends within the country firms but also outside the country. This is in addition to investment in property, which is intentioned to benefit in mitigating against the effects of inflation especially during periods of market instability. The recommendations therefore have varied benefits to the advantage of David French and Denise French. Brief description of each of the new investments recommended. The changes recommended are varied and are intentioned to reduce taxes paid by the duo, Denise French and David French, while at the same time increasing their Residual Cash flow, while reducing the burden of administration of assets, since the assets are shall be concentrated on one person, avoiding duplicate investments in one company. It is recommended that Macquarie Cash Management Account be maintained by David French, considering that the amount has been decreased to 50,000 dollars and intentioned to mainly gather for emergencies, it is important that the money be in a single account is it is intentioned to be in fixed account earning an estimated income of $ 2,500. In terms of investment in property, it is recommended that Denise French alone invests in Vanguard Australia, Zurich Investments at a total cost of $ 75,000, which constitutes 15 % of the total investments, these is intentioned to reduce the burden of administrative challenges, where Denise French alone shall deal with the property investors and earning the income. Furthermore, it is recommended that David French surrenders all his shares in Australian equities to Denise who shall in addition acquire other equities in top 50 ASX Listed companies, i.e Fortescue metals Group, Stockland and Bluescope Steel Limited, these shall increase portfolio to 15 individual stocks, however no single stock shall hold more than 25,000 which is 10 percent of the total Australian Share Investments. The additional companies are chosen due to the relative stability of their prices in the ASX, hence relatively reduced risk exposure Deborah and  Jodie (246). The investments in Commonwealth Bank of Australia shall be reduced from $ 28,482 to $ 14,500 to conform to the requirement that no single stock holds more than $ 25,000. It is for the same reason that shares in Rio Tinto Limited, Santos Limited, and Woolworths Limited shall be reduced. However, shares in AMP Limited, CSL Limited, CSR Limited, Lend Lease Corporation Limited and Qantas Airways Limited shall be substantially increased to meet the additional investment reduced from the companies, with more than 10 %. Total investment in Australian equities shall constitute 50 % of the total investment, with estimated income of $ 11,250. It is moreover recommended that international equities constituting 25 % of the total investment be invested in Wells Fargo and Hewlett Packard by Denis French, while David French invests in Morgan Stanley. These are chosen from the New York Stock Exchange, since they can be accessible, by the duo, moreover, the investments are in stable internationally renown, hence the risks are reduced, Fischer (32). This shall earn a gross income of $ 5,625. In investments concerned with Australian property securities through managed funds, it is recommended that these contribute 15% of their total investment portfolio, Vanguard Australia and Zurich Investments are the chosen fund managers where the investments shall be registered in the name of Denise French, earning a gross income of $ 3,375. Whereas the recommended investment decisions may seam to reduce Total portfolio, they reduce the impacts of risks and Residual cash flow. Works Cited Brigham Eugene and Houston Joel. Fundamentals of financial management. London: Cengage Learning, 2007 Deborah, Penrith and  Jodie Seal. Live & Work in Australia. Melbourne: Crimson Publishing, 2008. Fischer Linda. Investing in Shares Blake's Go Guide Series. Pascal Press, 2003 Woellner Rob, et al. Australian taxation law. Sydney: CCH Australia Limited, 2009. Read More