Case: A RICH UNCLE-THE MURPHYS' GOOD FORTUNE
Ron and Helen Murphy own a ten-pin bowling centre located in a New South Wales regional town. They enjoy running the business, which they have owned for nearly three years. Ron, a retired professional bowler, saved for nearly 10 years to buy this business, which he and his wife fully own. The income from the centre is adequate to allow Ron, Helen and their two children, Mary (age 10) and Michael (age four), to live comfortably. Although lacking formal education beyond Year 10, Ron has become an avid reader. He enjoys reading about current events and personal finance, particularly investing. He especially likes Smart Investor magazine, from which he has gained numerous ideas for better managing their finances. Because of the long hours required to run the business, Ron can devote three to four hours a day (on the job) to reading. Recently, Ron and Helen were notified that Helen's uncle had died and left them a portfolio of shares and bonds with a current market value of $300 000. They were elated to learn of their good fortune but decided it would be best not to change their lifestyle as a result of this inheritance. Instead, they want their newfound wealth to provide for their children's private school education, as well as their own retirement. They decided that, like their uncle, they would keep these funds invested in shares and bonds. Ron felt that in view of this, he needed to acquaint himself with the securities currently in the portfolio. He knew that if he were to manage the portfolio himself, he would have to stay abreast of the securities markets as well as the economy in general. He also realised he would need to follow each security in the portfolio and continuously evaluate possible alternative securities that could be substituted as conditions warranted. Because Ron had plenty of time in which to follow the market, he strongly believed that, with proper information, he could manage the portfolio. Given the amount of money involved, Ron wasn't too concerned with the information costs; rather, he wanted the best information he could get at a reasonable price.
Consider the following questions:
1. Explain what role the Australian Financial Review, Smart Investor, Money and other publications might play in meeting Ron's needs. What other general sources of economic and current event information would you recommend to Ron? Explain.
2. Explain to Ron the need to find a good stockbroker and the role the stockbroker could play in providing information and advice.
3. Describe the services and sources of investment advice available to Ron. Would you recommend that he hire an adviser to manage the portfolio? Explain the potential costs and benefits of such an alternative.
4. Give Ron a summary prescription for obtaining information and advice that will help to ensure the preservation and growth of the family's newfound wealth.