What are the returns on a $30,000 loan over 12 months with a 5.84% EIR if invested in Havenport Moderate, and what are the risks involved?

If you take out a $30,000 loan for 12 months with an Effective Interest Rate (EIR) of 5.84% and invest the funds into Havenport Moderate, here’s a detailed breakdown of the returns and risks involved:

1. Loan Calculation with EIR of 5.84%

First, calculate the total interest and repayment amount for the loan.

The interest on a $30,000 loan over 12 months with a 5.84% EIR is calculated using the formula:

\( \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \)

Substituting values:

\( \text{Interest} = 30,000 \times \frac{5.84}{100} \times 1 = 1,752 \)

The total repayment amount would be:

\( \text{Total Repayment} = 30,000 + 1,752 = 31,752 \)

2. Investment in Havenport Moderate

Next, calculate the potential return if the loan amount is invested in Havenport Moderate for 12 months. Havenport Moderate has shown an annualised return of 6.1% since inception and a 1-year return of 13.2% as of August 2024.

Scenario 1: Using the 6.1% Annualised Return

If the investment yields the historical 6.1% annual return, the projected return would be:

\( \text{Investment Return} = 30,000 \times \frac{6.1}{100} = 1,830 \)

The total value of the investment after 12 months would be:

\( \text{Total Value} = 30,000 + 1,830 = 31,830 \)

Comparing this with the loan repayment amount:

\( \text{Net Profit} = 31,830 – 31,752 = 78 \)

Thus, if the investment follows historical returns, you could make a net profit of $78.

Scenario 2: Using the 13.2% 1-Year Return

If the investment achieves its recent 1-year performance of 13.2%, the projected return would be:

\( \text{Investment Return} = 30,000 \times \frac{13.2}{100} = 3,960 \)

The total value of the investment after 12 months would be:

\( \text{Total Value} = 30,000 + 3,960 = 33,960 \)

In this case, the net gain would be:

\( \text{Net Profit} = 33,960 – 31,752 = 2,208 \)

If the 13.2% return is achieved, you could make a net profit of $2,208.

3. Risks Involved with Havenport Moderate

Investing in Havenport Moderate carries several risks:

• Market Risk: Both the equity and fixed-income portions are exposed to market fluctuations, especially during times of volatility.
• Credit Risk: The fixed-income investments may default or underperform, leading to potential capital losses.
• Liquidity Risk: Some assets may be difficult to sell quickly without impacting their value, particularly during market stress.
• Interest Rate Risk: Rising interest rates could negatively impact the bond portion of the portfolio.
• Currency Risk: Since Havenport Moderate invests globally, fluctuations in exchange rates could affect returns.
• Political and Economic Risk: Global events or economic downturns could reduce the portfolio’s value.

These risks align with the moderately aggressive profile of Havenport Moderate, which aims to balance growth and income.