Page 241 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Personal Financial Planning

Notes (shares, fixed interest and cash, property) will ultimately determine the long-term returns and
the level of return variance. For short term investment objectives (that is, less than two years),
financial planners generally make use of cash and fixed interest type investments. While returns
from these types of investments are generally modest, they exhibit low volatility and there is
reduced likelihood of a negative return over such a period.
Moving to medium term investment objectives, the financial planner begins to consider
investments which provide growth and income. While this introduces a degree of investment
volatility, it should be noted that with an investment objective of three years or more, the likely
negative returns in one year will potentially be offset by positive returns in other years.

Lastly, for long term investment objectives, the competent financial planner considers the use of
asset classes which provide growth. However, the financial planner should also consider the use
of tax-effective investment products such as Public Provident Fund or gearing strategies to assist
with achieving the person’s long term investment objectives.

Self Assessment

Fill in the blanks:

1. In developing the strategies within the comprehensive financial plan, the
………………..firstly look to securing the person’s current financial position.
2. The ………………….you recommend will influence the income flow, both in terms of
rupee amounts and the timing of that income.
3. ……………….will impact on the desirable balance between growth and income in the
investments chosen.

4. The first step is to determine whether or not there is adequate protection for assets and
their estate …………….. .
5. The …………….should also consider the use of tax-effective investment products such as
Public Provident Fund or gearing strategies to assist with achieving the person’s long
term investment objectives.
13.2 Investment Decisions

Essentially, there is a three-tier approach to investment decisions:
1. Decide on the appropriate mix of investments across the various asset sectors
2. Select the types of investments within each asset sector.

3. Select the specific investment products for recommendation to the person.

Asset Allocation Strategy

The process of determining the mix of investments in the various markets, or asset sectors,
according to the person‘s objectives and risk profile is known as asset allocation strategy.

(use the same five categories, but with slightly different titles.)

236 LOVELY PROFESSIONAL UNIVERSITY