Published on August 21, 2014
Executive Summary This report will discuss how the investment climate has changed in Australia over the past 7 years, it will state two different investment choices and how much money to be invested in those choices out of the $600,000 inheritance. It will also monitor and provide evidence of the changing value of the investment. This report will also assess the portfolio including the strengths and weaknesses and the value of the investment in 10 years’ time . Investment Climate in Australia The investment climate refers to the economic and financial conditions in a country that affects individuals and businesses. The investment climate is affected by many factors including: poverty, workforce, crime, infrastructure, political instability, taxes, national security, regime uncertainty, property rights, government regulations, government transparency and government accountability. An unfavourable investment climate is one of the many hindrances faced by underdeveloped nations. Regulatory reform is often a key component of removing the barriers to investment. A number of non-profit organizations have been established for the purpose of improving the investment climate and spurring economic development in these countries. Also, some investors are willing to take on the high level of risk and volatility associated with investing in an unfavourable climate because of the potential that the high risk will be rewarded with high returns. The month of June 2014 was relatively uneventful in financial markets. Australian shares fell slightly (the ASX200 index was down 1.5%), while international shares rose slightly. Over the full financial year returns for both Australian and international equities have been very strong as markets continued to recover from the volatility experienced in 2011 and the first half of 2012. In Australia, the Reserve Bank continued to keep its cash rate target on hold at 2.5%. Government bond yields continued to fall in June, which as positive for returns on fixed interest investments (when yields fall, the market value of issued bonds tends to rise.) The past ten years has been a great time to invest in the equity market, but residential property delivered better, producing steadier returns over the long run. The GFC, which occurred in 2007 and lasted to 2008 was caused by a loss of confidence by the US investors in the sub-prime (a type of loan granted to individuals with poor credit histories) mortgages, causing a problem with liquidity. The United States Federal Reserve Bank then moved to try to stop the issue by pushing a very large amount of money into the financial markets. Just over a year later, in September of 2008, stock markets throughout the world would crash and turn extremely volatile. The effect of the crisis on Australia was considerably less than in many other countries. The Australian economy recorded markedly better growth outcomes than most other developed economies, many of which experienced severe recessions and rise in unemployment. The most obvious impact of the crisis on most Australian households was the large decline in equity prices, which reduced the wealth of Australian households by nearly 10% by March 2009.