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Seminar assignments - Financial plan

Financial Plan

Course

Wealth Management (FINS2643)

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University of New South Wales

Academic year: 2015/2016

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Financial Plan FINS2643 Financial Plan Tables of Content Executive Summary 3 4 Goals 5 Personal Balance Sheets and Income Statements Asset Allocation 8 10 Credit Cards (Commonwealth Bank Low Rate Card ANZ Low Rate Card) 11 12 Managed Funds 13 18 Single Asset Funds Fixed Interest Funds (AMP Capital NZ Fixed Interest Fund) 13 14 Mixed Asset Funds Balanced Funds (AMP Balanced Fund) 15 18 Mortgage 19 21 Tax Planning 22 23 Insurances 24 27 Private Health Insurance HBF Saver Hospital Excess and Saver Flexi Extras Life Insurance Allianz Life Superannuation Pension 26 27 28 30 First State Super Wills Appendix A Client Questionnaire Appendix B Risk Profile Questionnaire 2 31 33 FINS2643 Financial Plan Investing in property market and carrying out mortgage loans offers various benefits such as tax deductions, growth in value, potential capital gains, regular income stream and high value collateral. Conversely, property investment may also subject to the problem of price risk, high costs beyond initial purchase price and illiquidity. Hence, individuals should weigh up the costs and benefits when they decide to invest into the property market. Tax planning is essential to individuals because this could minimise the tax payable and maximise the tax benefits that individuals may enjoy. It is important for them to know the calculation of assessable income, allowable deductions and annual tax payable, so that they will be able to minimise the amount of tax payable from obtaining the deductions such as home office expenses, and donations. Financial planners may also discuss insurance issues with clients. Insurance provides risk cover and help to manage the goal achievement while facing uncertainty in different life stages. Private health insurance like Saver Hospital Excess and Saver Flexi Extras and Allianz Life Plan are considered as the suitable insurances for the client in her case. Individuals are advised to read through the benefits, terms and conditions, insurance costs, claims processes and exclusions of the plans before taking out any insurance plans. Superannuation, such as First State Super, is regarded as a strategy which ultimately increases an wealth from accumulating savings for retirement. The capital gains of the superannuation fund are only taxed at instead of at marginal tax rate. Australian residents are also eligible to various social security benefits during different life stages such as Medicare, Newstart Allowance, ba bonus, family tax benefit, child care benefit and age pension. preparing a will, an individual ensures his or her belongings will go to the desired beneficiaries after his or her death. It is suggested to construct a will when individuals enter into the stage of wealth accumulation, getting married or having children. The existence of a will may speed up the court review process while limiting family disputes. 4 FINS2643 Financial Plan Week 2: Financial Planning Task Short Term Goals 1. 2. 3. 4. Save up the end of the year Apply for job or internship for the coming holiday Plan for a trip to Japan or New York Buy a luxury bracelet for myself Long Term Goals 1. 2. 3. 4. Purchase a house at the age of 35 Save up for my graduation trip Investing in stock market and have a return of in 2 years Prepare for retirement spending million) questionnaire has been attached in Appendix A. profiling questionnaire has been attached in Appendix B. 5 FINS2643 Financial Plan Expense: Food Transportation Entertainment Miscellaneous expenses Internet bill Total expenses: Total balance: 300 100 400 30 50 880 20 3600 1200 4800 360 600 10560 240 Nicole Yeung Income and Expenditure Statement for the year 12 October 2025 Income: Monthly Yearly Salary Dividends from stocks 4500 Total income Expense: Food Interest (mortgage) Internet bill Phone bill Transportation Entertainment Insurance Holiday trip Total expenses: Total balance: 4700 200 700 50 50 120 700 200 various in times 2820 1880 7 2400 56400 8400 600 600 1440 8400 2400 33840 22560 FINS2643 Financial Plan Week 4: Financial Planning Task Asset Allocation 1. What type of financial product appeals to you the most and why? There are a variety of financial products available in the current financial market, such as shares, bonds and derivatives etc. After completing the risk profiling questionnaire (refer to Appendix B), it shows that I am a balanced investor who prefer to invest in shares among all other financial products. Shares are a form of equity investments representing ownership in a corporation, and investors have the ownership to claim from the firm. Moreover, investing in shares generate two sources of income which are dividends and capital gains. Dividends are the distribution of the profits to its shareholders whereas capital gains are the increase in the market value of the shares. I found shares the most appealing financial product since it is less risky than derivatives, which are another type of financial product with high volatility and price sensitivity. Shares are also profitable than bonds, which are highly liquid asset. 2. Carry out asset allocation according to your own risk profile. Give an example of one product you would purchases in each asset class and give reasons why. A balanced investor tends to seek a higher level of growth and longer investment horizon than conservative ones, and would take a relatively higher risk in arranging their affairs to qualify for a government benefit or obtain a tax advantage from their investment. The investment time horizon will normally be five years. The following table and graph depict a way in which a balanced investor would allocate their assets: Assets allocation Property Shares Fixed income security Cash Example Australian Real Estate Investment Trust Google Australian government bond Cash Saving account 8 FINS2643 Financial Plan Cash Saving account: Cash and saving account provides a high level of liquidity with minor level of risk, unless the bank defaults or goes into bankruptcy. It is important for investors to understand that Australian government provides certain level of guarantee on domestic deposit in terms of default. Nowadays, banks tend to provide high interest rate for saving account in order to encourage domestic savings and create competitive advantage over other banks. Week 5: Financial Planning Task 10 FINS2643 Financial Plan Comparison between two credits cards in the Australian market Two credits cards which are Commonwealth Bank Low Rate Credit Card and ANZ Low Rate Credit Card are compared in the following different criteria: Commonwealth Bank ANZ Low Rate Credit Card Low Rate Credit Card p. for the first 16 months on balance transfers Balance Special Offer Annual Fee Interest rate Cash advances Minimum credit Card fee Late payment fee Over limit charge Balance transfer interest p. on purchases for 5 months p. p. 0 rate p for 5 months Transfer Fee applies) p. p. 0 p. for the first 16 months Interest Free Period on Purchases International Up to 55 days Up to 55 days Transaction Minimum income requirement Based on the comparison table of both CBA and ANZ credit card, I would choose CBA low rate credit card over ANZ credit card because of the following reasons: Lower annual interest rate Lower late payment fee 11 FINS2643 Financial Plan understand different types of funds and how the funds are invested. Managed funds mainly separate into two forms which are single asset funds, and mixed asset funds. Furthermore, it is also important to consider the risk exposure and return on investment for a profile when deciding what asset class an investor would invested in each managed fund. Single Asset Funds Single asset funds refer to the funds that invested into a single asset class. There are generally 5 asset classes that a fund can invest into, such as cash, fixed interest and bonds, mortgages, shares and property. As a profile investor, it is recommended to invest into a fund. Fixed Interest Funds According to Australian Securities Investment Commission (ASIC), fixed interest funds consist of cash, government bonds, bank bills or securities. They are typically low risk, short to medium term investments. The graph below shows the volatility of different single asset managed funds, and reflects the low risk exposure of fixed interest funds with reasonable expected return. Fixed interest fund generally provides regular income returns at a fixed interest rate, repays initial investment, and allows investors to earn higher initial rate of 13 FINS2643 Financial Plan interest until maturity. An example of fixed interest fund that a balanced risk profile investor should consider to invest into is the AMP Capital NZ Fixed Interest Fund. It aims to generate a Gross Return above the return of the ANZ NZ Government Stock Gross Return Index (GRI) on a rolling three years basis according to the performance report from AMP Capital. The following graph also depicts the promising performance of NZ Fixed Interest Fund relative to the ANZ NZ Government Stock GRI. Funds Name Legal Type Entry price Exit price Net fund size Cash AMP Capital NZ Fixed Interest Fund Investment Trusts million distributions Max admin fee Max management fee Fund Returns (March, 2013) (March, 2014) (March, 2015) (September, 2015) The benefits of investing into AMP Capital NZ Fixed Interest Funds: A diversified portfolio of medium term fixed interest securities, leading to risk reduction Relative liquidity compared to direct investments in individual bonds or securities Consistent and attractive expected return growth 14 FINS2643 Financial Plan to long term, with broad diversification and moderate fluctuation in value likely. The exposure to alternative investments is used to help reduce fluctuations. Australian equities international equities and alternatives take up the most proportions of the fund, which has been shown in the pie chart below. Funds Name Legal Type Net fund size Cash AMP Balanced Fund Balanced Fund million distributions Entry price Exit price Max admin fee Max 16 FINS2643 Financial Plan management fee Minimum investment Standard 5 (Fund), 0 (Index) deviation Fund Returns (June, 2013) (June, 2014) (June, 2015) (September, 2015) Benefits of investing in AMP Balanced Fund: A diversified mix of growth and defensive assets Growth assets such as shares, property and alternative growth strategies will have an average allocation over time of Low minimum initial investment requirement No administration fee Week 8: Financial Planning Task 17 FINS2643 Financial Plan 4. Physical characteristics of the house Despite the price of the house, an needs are crucial issue needed to take into consideration. At this moment, I think the house which best suits my needs needs to be big enough to live in with my family. The attached features of the house such as the layouts of bedrooms, storage space and garage will also affect the future resale price of the property. Weigh up the benefits and the downsides of purchasing a house. Benefits of purchasing a house: An individual may enjoy the exemption of CGT on the disposal of the house if it was used as the main residence The house may achieve steady capital growth over the years, or generate a source of income from renting it out Investment in properties tend to be a relatively stable asset class compared with other financial assets in history, offering stability and sense of security to the owners A strategy of negative gearing can be Tax deductions can be claimed for interests and expenses such as rates and depreciation items paid on mortgage, resulting in lower tax liability Downsides of purchasing a house: Illiquid nature of property Significant costs beyond sale price of the property such as legal fees, conveyancing costs and stamp duty are involved Risk exposes to changes in government taxes over the years (e. changes in capital gains tax and land tax policies) Property require a substantial amount funds to invest Continuous maintenance for property is required Changes in interest rate may lead to huge impact on ability to meet the interest exposing to the financial risk Decide whether you would purchase the house and give reasons why. 19 FINS2643 Financial Plan Purchasing my own house is one of my long term goals as stated in task 1. However, if I could not achieve it due to my financial inability the time, the alternative I have would be renting a property instead of buying one. Being a owner of a house need to examine all the issues relating to the purchase price of property, other costs, physical features of property, location, and the potential appreciation of the resale value. The following reasons explain why homeownership attracts me rather than renting: Be the owner Rights to control I would become the proprietor when I purchase a house. I have the rights to make every decision related to my property such as maintenance and renovation without informing others, which is converse to renting a house of someone else. Besides, owning a house provide a sense of security to the owner due to its stability. Minimise the rent Becoming a owner eliminate the expenditure on renting property. It reduces a source of expenses and may generate a source of income when leasing the house out. Growth in value Real properties are recognised as safe assets and usually guaranteed stead or high growth in their values. The price of properties tends to not fluctuate as much as shares and bonds. The value of the house may go up over the years, and profits may be generated at the resale of the house. Encourage savings and build up equity Individuals mostly purchase a house with a mortgage home loan. Interest and principal repayments are required to pay in each particular period of time. I would be forced to save up and reduce some of my expenditures in order to repay the fixed monthly repayments. Moreover, repaying the principal should not be considered as a cost like paying the rent as it is in fact an equity investment. Week 9: Financial Planning Task Choose a future career for yourself and find the current yearly income 20

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