Advice (Soa): Financial Planning Purpose Essay

Pages: 11 (3385 words)  ·  Bibliography Sources: 9  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

SAMPLE EXCERPT . . .
Almost all investments carry some risks and some have more risks than other. Generally, investments that produce higher returns have higher risks. Since you are balanced investors, your goal of increasing your wealth and double your money within 10 years may carry higher risks.

Based on this basis, my advice for you is as follows:

Invest 60% of your fund in growth assets such as managed funds,

Invest 40% of your fund in bonds such as Australian bonds.

Following this advice, the chance of achieving the negative returns is low, and you are expected to achieve your goal and objective.

Section 2: Investment Recommendations

This section provides the following:

my advice and why it is appropriate,

Risks associated with my advice.

First Advice

My first advice is to sell all the following stocks and use the money to purchase top performing managed funds in Australia:

Harvey Norman- $7,500

Telstra

-$5,500

AXA-$9,500

Westpac - $20,000

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You should sell AXA and Westpac stocks since these stocks are jointly owned. You should also sell your owned individual stocks such as Harvey Norman and Telstra owned. The yearly returns of 4% for these stocks are too low. Moreover, giving the volatility in the capital markets where stock prices could fall without notice, it is not financially advisable to stick with these types of stocks. The yearly returns of these stocks are presented below:

Table 4: Stocks

Value

Rate

Yearly Rate of Returns

Harvey Norman

$7,500

4%

$300

Telstra

$5,500

4%

$220

AXA

$9,500

4%

$380

Westpac

$20,000

4%

$800

Total

Essay on Advice (Soa): Financial Planning Purpose Assignment

$42,500

4%

$1,700

Less Capital Gain Tax

850 (50% of $1,700)

Net Returns

$850

From the data presented above, investment of $42,000 will only yield the net yearly returns of $850. The paper recommends that you sell these stocks and use the funds to invest in some of these following top performing managed funds in Australia:

Table 5: Top performing managed funds

Fund name

Morningstar

rating

Sector

Historical Rate of returns

3 Mth

1 Yr

3 Yr

Perpetual WFIA -- (Perpetual Geared Australian)

Source: InvestSmart (2013).

The table 6 below presents your yearly returns if you invest your $42,500 in any of these managed funds.

Table 6: Top performing managed funds

Value

Rate of returns

Estimated Yearly Returns

Perpetual WFIA -- (Perpetual Geared Australian)

$42,500

68.36%

$29,053.00

Platinum Japan

$42,500

66.90%

$28,432.50

Colonial FirstChoice Investments -- (PM Capital Absolute Performance)

$42,500

66.48%

$28,254.00

Colonial Wholesale Geared Share

$42,500

59.43%

$25,257.75

Smallco Investment

$42,500

58.23%

$24,747.75

Colonial FirstChoice Investments -- (Acadian Geared Global Equity)

$42,500

58.17%

$24,722.25

Colonial FirstChoice Investments -- ("Colonial Geared Share")

$42,500

57.95%

$24,628.75

"Colonial Managed Investment Funds" -- (Geared Share)

$42,500

57.82%

$24,573.50

Smallco Broadcap

$42,500

53.18%

$22,601.50

BlackRock W (Global Small Capital)

$42,500

51.99%

$22,095.75

BlackRock P Investment (Global Small Capital)

$42,500

51.49%

$21,883.25

BlackRock (Global Small Capital)

$42,500

50.95%

$21,653.75

"Macquarie Asia New Stars No.1"

$42,500

49.41%

$20,999.25

Colonial Wholesale (Geared Australian Share -- Core)

$42,500

49.21%

$20,914.25

FirstChoice Wholesale (Geared Australian Share)

$42,500

47.09%

$20,013.25

Colonial FirstChoice Investments -- ("Geared Colonial Australian Share -- Core")

$42,500

46.94%

$19,949.50

Colonial FirstChoice Wholesale Inv -- (Goldman Sachs W. Global Sm Co)

$42,500

46.22%

$19,643.50

OnePath OA IP -- (Optimix Global Balanced SmCo S2 EF)

$42,500

46.14%

$19,609.50

Colonial FirstChoice Investments -- (GSachs Global Small Comp)

$42,500

44.94%

$19,099.50

Perpetual WFIA -- (Templeton Global Equity)

$42,500

43.23%

$18,372.75

Platinum International

$42,500

43.10%

$18,317.50

Platinum Unhedged

$42,500

42.15%

$17,913.75

Platinum European

$42,500

41.99%

$17,845.75

OnePath OA IP -- (Platinum International EF)

$42,500

41.21%

$17,514.25

Colonial FirstChoice (Investments - Platinum International)

$42,500

40.41%

$17,174.25

As being revealed in Table 5 and 6, the top performing managed funds with higher yearly historical returns are rated with three stars or higher. Morningstar rating measures fund risk adjustment of managed funds returns relative to similar funds. Morningstar rates managed funds from one to five stars. While top performing managed funds receive five stars, the worst performing managed funds receive one star. (Morningstar Research, 2013). Thus, it is advisable that you choose among the top performing managed funds companies and invest your $42,500. You can spread the money among five managed fund companies in different sectors.

Why this Advice is Appropriate

This advice is appropriate because you will be able to increase your yearly returns of the money invested. Moreover, you will wisely invest your money in the top performing stocks in Australia, which have been tested to be able to resist volatility in the stock markets. The recommended investments are appropriate for investors like you who will like your fund to grow over time. You can withdraw your money as you wish if you decide to discontinue with the investment. Moreover, the increase in the stocks returns will assist you to maintain the lifestyle that you desire after your retirement.

Risks Associated with this advice

The state of the economy might affect the yearly returns anticipated. All managed funds carry some risks and the returns might not reach the anticipated target yearly returns. The data used to calculate returns are the historical returns and these returns might go up or down based on the state of the economy.

My Advice 2

The second advice is the most important because it involves the strategies to manage your superannuation. Active management of your super annulations is very critical because it will assist you to achieve your long-term goals and objectives.

Why this Advice is Appropriate

Since David will receive superannuation of $350,000 after he retires, and Benda will receive the sum of $280,000, my advice is to invest these funds in the following categories:

First, you should invest 60% of these funds in Australian managed mutual funds. The major benefit of investing in mutual fund is that your money will be in the hand of professional fund managers who will assist you to manage your funds effectively. "Mutual funds offer professional management of your money. These managers have the training and resources to keep abreast of and adjust to market changes." (Garrett, 2008 P. 2). Thus, mutual funds are very attractive when capital markets are usually volatile and they offer professional management solution for your money. Major benefits of mutual fund investment are that fund managers are required by Australian law to follow the investment objectives and portfolios.

More importantly, fund managers will assist you to eliminate some risks associated with the financial markets by assisting you to invest in individual stocks and bonds thereby allowing you to spread your risks in many different shares. Additionally, investing in mutual fund will assist you to achieve a well-diversified portfolio because fund managers will spread your funds in stocks and bonds.

Convenience and marketability are other benefits in investing in mutual funds. Mutual funds will assist you to reinvest your capital gains. Marketability of funds allows you to easily sell or buy mutual funds shares. Unlike mortgage investment, which may not be possible to sell your house when you wish, mutual funds allow you to quickly sell and cash your shares as you wish. Thus, marketability will assist you to maintain a well-diversified portfolio. The 60% of your supper annulations to be invested in mutual funds is presented below:

Superannuation

Amount

Contribution

% Contribution

David Superannuation

$350,000

60% of 350,000

210,000

55.55%

Brenda Superannuation

$280,000

60% of 280000

168,000

44.44%

Total

$630,000

$378,000

If you invest the 60% of your superannuation in 10 of the managed funds listed above, you will likely to earn capital gains of up to $211,145.75 yearly from your funds.

It is advisable to reinvest your fund yearly to take advantages of the higher yearly returns on your investment. If reinvest your fund yearly within the next 10 years, your 10-year returns will be approximately $2,111,457.50 as revealed in the table below:

Managed Funds

Value

Rate of Returns

Yearly Returns

Perpetual WFIA

(Perpetual Geared Australian)

$45,000

68.36%

$30,762.00

Platinum Japan

$42,500

66.90%

$28,432.50

Colonial FirstChoice Investments

( PM Capital Absolute Performance)

$42,500

66.48%

$28,254.00

Smallco Investment

$35,500

58.23%

$20,671.65

Colonial FirstChoice Investments

( Colonial Geared Share)

$35,500

57.95%

$20,572.25

BlackRock W (Global Small Capital)

$35,500

51.99%

$18,456.45

Macquarie Asia (New Stars No.1)

$35,500

49.41%

$17,540.55

Colonial FirstChoice

(Wholesale Inv - Goldman Sachs W. Global Sm Co)

$35,500

46.22%

$16,408.10

Platinum Unhedged

$35,500

42.15%

$14,963.25

Platinum International

$35,000

43.10%

$15,085.00

Total

$378,000

$211,145.75

Average of all Managed Fund Rates

55%

10-year Returns Excluding Tax

=10 x 211,145.75

=$2,111,457.50

10-Year Returns before Tax

$2,111,457.50

The calculation above assumes that you do not reinvest the returns of your initial capital after the first and subsequent years. If you reinvest your subsequent returns with your capital in the subsequent years, your returns from the capital investment will be more than $30 Million within 10 years… [END OF PREVIEW] . . . READ MORE

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