3143 TOPIC 10 Investment Planning.doc

3143 TOPIC 10 Investment Planning.doc - TOPIC 10 INVESTMENT...

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TOPIC 10: INVESTMENT PLANNING 1. Importance of Investing in Financial Planning Investing is the vehicle through which we achieve many of our financial goals. In our personal financial plan we set financial goals such as buying a house or paying for our children's education. One way to accumulate funds to achieve these long-term goals is by investing. An investment is a commitment of funds to one or more assets that will be held over some future time period, in the hope that it will generate more income. The asset could be tangible like real estate properties or non-tangible monetary assets like securities and you would invest in them based on your financial goals and objectives. Reward for investing – Returns in the form of: i. Income - Interest/Coupon ii. Capital Gain - Profit 2. Difference between investing and speculating Investing – is a long term activity Future values and returns expected to increase through time.
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Considerable research done Speculating – is a short term activity Future values and returns are uncertain Investment based on heresay (rumour) 3. Investment Objective Investment objectives are important because they are so closely tied to overall personal financial planning and the achievement of financial goals. Clearly defining investment goals helps to develop appropriate strategies to reach them. i. Supplement current income Additional income especially for retirees ii. Save for major expenditure Down payment for car, house or starting business, college education etc. iii. Save for retirement For a comfortable golden years iv. Tax shelter To protect income from paying taxes. 4. ESTABLISHING INVESTMENT GOALS Financial goals should be specific and measurable . Example: i. By 31 Dec 2012, I will have assets worth RM 120,000.
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ii By 31 July 2013, I will accumulate enough money to pay down payment for a Honda CRV i.e RM15,000 4.1 To develop your goals ask yourself What will you use the money for? Saving for your wedding, to start a small business in 4 years etc How much will you need for your goals? RM 40,000 How will you obtain the money? Investing in shares, unit trust. How long will it take you to obtain the money? 12 months/ 4 years etc How much risk are you willing to assume in an investment program? Semi-aggressive 4.2 Preparing for an Investment Program What possible economic or personal conditions could alter your investment goals? Market downturn Given your economic circumstances, are your investment goals reasonable? Yes/ No? Are you willing to make the sacrifices necessary to meet your investment goals? Assume higher risk/ reduce target
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What will the consequences be if you don’t reach your investment goals? Reduce target to RM25,000 A Personal Plan for Investing Establish realistic goals Determine the amount of money needed to meet your goals Specify the amount of money available to fund your investments List different investments you want to evaluate Evaluate risk and potential return for each
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