Individual Assignment BBMF3193 Wealth Planning.doc - TUNKU...

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TUNKU ABDUL RAHMAN UNIVERSITY COLLEGE FACULTY OF ACCOUNTANCY, FINANCE & BUSINESS ACADEMIC YEAR 2020/2021 BBMF3193 WEALTH PLANNING Individual Assignment Objective of Coursework 1. To equip students with the skill on behavioral finance. 2. To enhance the students’ understanding of behavioral finance on individual investor. Mr. James (“Mr. J”) is a single, 58 year old, hard-working, international corporate lawyer (an employee of a large multinational company). He earns a salary of RM600,000 annually. He has residence in both London and New York and generally lives within his annual income net of taxes. He occasionally spends more than his net income, but in other years he saves and invests. His current portfolio is worth approximately RM3,500,000. It reached his value primarily because of some successful high risk oil and technology investments as well as stock options granted by his employer. Mr J has no plans for marriage or children. He had a mild heart attack last year, but he has made a full recovery. His primary financial goal is to retire comfortably at age 65 with a reduced spending level of RM150,000 and to bequeath any assets remaining at his death to his alma mater, Oxford University. Mr. J’s financial adviser, Mr Palm Mall, has been working with Mr. J for less than a year. During that time, Mall has proposed a comprehensive financial plan. Despite Mall’s recommendations, however, Mr. J’s asset allocation has remained the same at nearly 80 percent equities, with 40 percent in his employing company’s publicly traded stock. Still, Mall has developed a good working relationship with Mr. J. Mall believes that Mr. J is a well-grounded, fairly rational person, but he also believes that Mr. J has some behavioral issues to address. In Mall’s view, the most important issue is that Mr. J has not taken action yet on the new, more conservative allocation that Mall proposed months ago of 60 percent stocks, 30 percent bonds, and 10 percent cash. Mall worries about the lack of diversification in Mr. J’s portfolio. Mall’s concern us that a severe downward market fluctuation or drop in Mr. J’s employing company’s stock may cause him to sell assets irrationally, affecting his long-term financial plan. Mall’s financial plan demonstrates that even with a somewhat less aggressive portfolio, Mr. J could still meet his primary financial objective if he could save just RM25,000 annually. Mall believes that one of the issues is that Mr. J thinks of himself as a very savvy investor because of some risky bets that worked out well for him in the past. Mall suspects that Mr. J hasn’t changed his allocation because he thinks Mall’s allocations recommendation is too conservative. Mall also notices that Mr. J

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