personal financial planning report

Personal Financial Planning ReportName Student IDLiu Zhifei 3830810Wang Yifei 3830820Wang Yuting 3830819Zhu Wenbo 3830930TABLE OF CONTENTSChapter 1 - Introduction (3)1.1 Financial Planning Strategy (4)Chapter 2 – Personal Information and Financial Position (6)2.1 Family's Information (6)2.2 Client’s Financial Position (6)2.2.1 Personal Cash Flow Statement (6)2.2.2 Personal Balance Sheet (8)2.3 Risk tolerances and Attitudes toward risk (163) (8)Chapter 3 - Identification of Financial Goals and Problems (11)3.1 Identification of Financial Problems (74) (11)3.2 Identification of Financial Goals (104) (11)Chapter 4 - Diagnostic Analysis of Family's Financial Position (12)4.1 Financial Ratios Analysis (140) (12)4.2 Analysis of Financial Structure (59) (12)4.2.1 Structure of Earnings (12)4.2.2 Structure of Assets (13)4.3 SWOT Analysis (210) (14)Chapter 5 - Recommendations (16)5.1 Financial Assumptions (170) (16)5.1.1 Inflation Rate (16)5.1.2 Interest Rate (67) (17)5.1.3 Nationwide House Price Index (54) (17)5.2 Financial Advise (265) (18)5.2.1 Comparison of financial tools (18)5.2.2 Analysis of Asset Redistribution (18)5.2.3 Recommendations of Asset Redistribution (20)5.2.4 Recommendations of Family Insurance (21)5.2.5 Recommendations of House Purchasing Plan (21)Chapter 1 - IntroductionFinancial Planning will help achieve Miss Zhang's desirable financial objectives by the means of appropriate management of her financial resources and identify the priorities on each of her goals. To help you realize her aims, we assess her present financial position, identify her goals at different stages of her lifetime and then determine the achievable goals and the optimal means to achieve them.The financial planning model aimed at identifying her status quota and predict her future situations. All the analysis is according to the data provided in the Financial Panning Questionnaire completed on 04-27-2011. Relevant tables and charts are given for facilitating us to understand and clarify what is going on.When we organize her financial plan, taking the fundamental aspects into account firstly, that is her personal information, financial information and financial planning objectives. In the second place, we move on to address more specific and complex issue based on the basic elements. Based on the analysis combing with her life and occupation characteristics, we put forward recommendations in terms of consumption and cash flow plan, investment and risk management plan, retirement plan which as a whole are designed to make approachable to the desirable aims and objectives. We deem that all these advises are matching your current financial needs, achievable projection and priorities and they are also so flexible that we can make timely adjustment to suit any future changes in your personal and financial circumstances which we will trace and pay ongoing attention to as well as check regularly.We make a series of assumption when doing ther. But actually projections based on these are quite sensitive to them. Even a little change in the economic condition will impose a significant influence on her projected financial situation in the coming years. Thus, such a change in the real situation will turn her actual financial outcome to be even radically different from the projected one. For ther reason, we advise that her situation should be revised and corrected on an annual basis.1.1Financial Planning StrategyGiven your family structure and your risk portfolio, we think her financial planning should be based on a long-run consideration and the principle of financial planning should be conservative. According to this, we recommend as followings:1.Career SimulationThrough the valid estimation of the key data, this simulation can ensure that the financial objectives of the clients are achievable and analyse its effects and correlated risks.2. Analysis of present financial positionIdentify the present financial circumstances of the client's based on the analysis of personal cash flow statement and personal balance sheet as well as the consideration of various financial ratios to utilize resources effectively and control risks.3. Analysis of the client's financial goals and the nature of risksIdentify the client's risk portfolio and expectation according to a series of relevant tests.4. Assets dispositionPerform effective assets disposition according to the expected return to achieve financial objectives along with control risks identified effectively.5. Property purchasing planMake a valid estimation and comprehensive analysis of the clients' repayment capacity, cash flow and financial position. In the mean while, provide the optimal solution in terms of loans and property purchasing plan.6. Home Protection SchemeThe scheme (HPS) is a mortgage-reducing insurance scheme to help insured members and their families pay off outstanding housing loans in the case of permanent incapacity of repayment given the correlated risk between the life expenditure and assets & liabilities.7. Retirement and pension securitySimulate the cash flow position of the client's lifetime and have an overview of her income and expenditure to arrange the wealth properly after her retirement and guarantee her sufficient cash flow and life quality.8. Review, revise and maintain the personal financial planGiven the client's circumstance, we recommend that the plan be revise per annual. The date should be April of 2012 unless there appears some significant changes.Chapter 2 – Personal Information and Financial Position2.1 Family's InformationFamily Member Mrs. Wu (client)Mr. Wu (husband) Age 45 50 Occupation SCM IT Children/dependents None None Retirement In 5 years This year Other information Both enjoy good health and non-smokers;both are nor insured for their home contents, cars andmedical costs.Never thought about their superannuation fund as they havecontinuance income after retirement2.2 C lient’s Financial Position2.2.1 Personal Cash Flow StatementPersonal Cash Flow Statement (Per Month)Income ExpensesPersonal income 25 000 Loans and credit cardrepaymentsHusband's income 30 000 Domestic expenditures 10 000 Interest and managed funddistribution5 000 Medical expenses 1 000 Property Rent 1 000 Personal contribution to 0superannuationTotal61 000 Total 11 000Balance available per month50 000Comparison between balance and expenditure permonth81.97%18.03%balance available per month expenses per monthPersonal Cash Flow Statement (Per Annual)Year-end bonus110 000 Domesticexpenditures120 000Interest and managed fund distribution 60 000 Loans and credit cardrepaymentsIncome 660 000 Medical expenses 12 000 Property Rent12 000 Entertainment,holidays andmiscellaneous expense5 000Automobile insurance 1 000 Others 0 Other expenses 30 000 Total842 000 Total 168 000Balance available from previous year674 000Comparison between balance available fromprevious year and total expenses80%20%Balance available fro m previous year Total expenses2.2.2 Personal Balance SheetAssetsLiabilitiesCash and at-call deposit100000 Home mortagage0 Fixed deposit 700000 Car loan 0 Shares, bonds and funds 5500000Credit cards 0 Home and contents3500000（3 sets ）Others 0 Cars 99800Total assets 9899800Total liabilitiesEquity98998002.3 Risk tolerances and Attitudes toward risk (163)Risk tolerances is the ability to perform risky investment and violate the fluctuation of prices. It is always affected by age, employment status, investment experiences, investment knowledge and such that. According to the outcome of our test (62 marks), we think that they can bear risks to some degrees. They have stable income sources and little economic burden because of no dependents or mortgages. In the aspect of investment, they got intermediatemarks, which means that they have mastered the fundamental of investments. In general, we classify them to the category of risk indefference people.Attitude to risks refers to the psychological changes when clients are faced with the losses of principal. In this aspect, our client only got 48 marks in the test. Because of lack of professional knowledge about investment and insufficient experiences as well as the weak personal psychological endurance, the score is a little weak, which means that their investment psychologies are sensitive to the result of the investment.Figure 1. Scoring table of risk tolerancesAge 10marks 8marks 6marks 4marks 2marks Scores of clients45 Total scores: 50marks; people under 25: 50marks; for 1 yearolder, 1marks less; people over 75: 0marks30Employmentstatus PublicofficersWageownerCommission earnerSelf-employedemployed 8Dependents Single double-incomefamilywithoutchildrendouble-incomefamilywithchildrensingle-incomefamilywithoutchildrensingle-incomefamilywithchildrenandparents8Property Real estateMainresidencewithoutHomemortagageHomemortagage<50％Homemortagage>50％Noresidence8Investment experiencesOver10years6～10years2～5yearsWithinone yearnone 4Investments knowledge professionalSystematicknowledgeBasicknowledgeA little nil 4Total scores 62Figure 2. Scoring table of attitude to risksRisktolerance% 10 marks 8 marks 6 marks 4 marks 2 marksScoresof clients10 No tolerance to any loss: 0 mark; per 1% increase; two marksincrease; loss tolerance>25％: 50 marks20The highest priorities Short- termmarginsLong-termgainsCashearnings p.a.Anti-inflationReserve forinvestment& pricipal8Reaction to losses No reactionsto stop-limitEx poststop-limitDamagedand keptpartlyWait forupturnRedeeminginvestment4Losses psycologyLearnexperiencesAs usualSlightaffectivelabilitySignificantaffectivelabilityCriticalaffectivelability4The most vital feature ProfitabilityProceedsand growthProceeds Liquidity Safety 6Risk controltools None Futures SharesForeignexchangeReal estate 6Total scores 48Chapter 3 - Identification of Financial Goals and Problems3.1 Identification of Financial Problems (74)There is a few financial problems listed as below:●How to handle present real estate and complete the purchasing plan;●How to make the investment to its advantages to meet the investment needs;●How to diversify the investment portfolio to reduce the potential risks;●How to invest in life and medical insurance to prepare for future accidents.●How to accumulate a certain assets via contribution to the superannuation to provideguarantee after their retirement.可以加点？？？3.2 Identification of Financial Goals (104)The couple's short term and medium-term financial objectives are summarized as: establish a safe and stable investment portfolio to ensure the consumption level and lifestyle unchanged, which are detailed as below:Short- term Objectives:●Purchase real estate in the square of 120-150 m2 in Beijing in the next year.●Handle the real estate in Shanghai which is valued at RMB 3.5 millionLong- term Objectives:●Purchase social health insurance for the whole family●Maintain current living standard as well as increase the value of the present property bydiversified investment.●Contribute the superannuation fund to accumulate a certain amounts of funds after theirretirement.Chapter 4 - Diagnostic Analysis of Family's Financial Position 4.1 Financial Ratios Analysis (140)We will utilize four financial rations to evaluate the family's own set of financial circumstances, they are respectively net worth ratio, current asset ratio, savings ratio.Net Worth RatioNet worth ratio = net worth/total assets *100 = 0That is, this family owns 100% of the assets that they are acquired without any liabilities. That is, they do not have any repayment obligations.Current Assets RatioCurrent assets ratio = curretn asset/total assets = 560 0000/9899 800=56%This ratio represents that half of their assets are in the form of cash or can be converted into cash within 12 months. It also shows that the liquidity of their assets is fine.Savings RatioSavings ratio = Savings/net income = 674 000/ 842 000= 0.8 = 80%The ratio for the family after tax is calculated as 80%. It shows that the family have a good investment potential.4.2 Analysis of Financial Structure (59)4.2.1 Structure of EarningsCurrently, their income comprises 3 parts mainly: income (80%), year-end bonus (13%) andInterest and managed fund distribution (7%).4.2.2 Structure of AssetsFor the most part, the assets of the family are: current asset, including cash and current deposit, accounting for 56% of the total assets; financial assets, at 1%; non-current, taking 56%, which should also be included in current asset.From another perspective, the assets can be divided into 3 categories according to the profitability of the assets, that is fixed-interest product, shares, bond and funds, investment real estate and others. The proportion they account for is depicted in the figure below:4.3 SWOT Analysis (210)We give a detailed analysis of the basic conditions of the family through SWOT analysis, combining with the financial ratios and financial structure analysis, which is listed as below:SWOT analysis of the family financial powitionS（Strength）No liabilitiesAbundant real estate Considerable income W（Weakness）Low liquidity assetsSlight price volatility and inability of anti inflationFewer investment classesO（Oppotunities）Higher life quality Property investment T（Threats）Lack of home guarantee measuresNeed comprehensive superannuation plan resulting from no childrenBased on the analysis listed above, we assert that our clients are moderately conservative investors with a satisfactory financial condition. This mean that they accept stability in both income and capital returns, they seek for more capital appreciation than just income stream, and a long-tern investment time frame is preferable to them.According to the information acquired from her family's cash flow statement and balance sheet, we judge that our client's financial circumstance is relatively ideal with all the ratios superior to the empirical value we searched via the Internet.The financial superiorities are mainly presented in the four aspects listed below:1.The family of two is in the stage of pre-retirement without any liabilities and relevant repayment burdens.2.They do not have the additional economic burden to purchase marriage housing for their children of marriageable age.3.They both own stable and considerable income. Besides, the savings ratio which compares the level of savings to total income after tax is relatively high.4.Current assets ratios is so high that there won't appear a liquidity problem, at 56%. Moreover, the investment ratio of the family remains at a higher steady-state level, which can achieve capital gain in short run.Chapter 5 - Recommendations5.1 Financial Assumptions (170)Given that the couple will retire in recent years, we set the span of the financial planning is from April, 2011 to April 2015. Due to incomplete basic information and uncertainty of the future economic environment and so on, we put forward reasonable and justifiable assumptions that are referred to as:5.1.1 Inflation RateChina's CPI, a main gauge of inflation, is expected to remain high in the next few quarters of the future 5 years. The index of the 1st and 2nd quarter are predicted to rise by about 5% year-on-year, but a slight fall is expected by the national financial planner. In the mean while, the GDP in 2011 is expected to grow 9.6 percent in 2011, which was moderated from 10.3 percent growth in 2010 as policy tightening slows investment. Though the inflation pressure from overseas is still strong, the price hike pressure from food has peaked, which means that the inflation rate may fall slightly. Thus, we expect the average inflation rate in the long-term will be 5%.5.1.2 Interest Rate (67)Since October 2010, The People's Bank of China, the central bank has increased the benchmark interest rate for four times, at 3.25% for deposit and 6.31% for savings and loans. Though the index is expected to rise further, but the inflation will be controlled through macro-control. Therefore, we expect that the inflation rate will not violate largely. The projected investment earnings will remain level as a whole.5.1.3 Nationwide House Price Index (54)Land prices and house prices in major cities of China rose slightly in the first quarter in 2011, but the government has adopted measures to cool the runaway property market. Because the country's strict measures to rein in property markets had begun to take effect, the house prices may increase at a slower pace.5.2 Financial Advise (265)5.2.1 Comparison of financial toolsAccording to the historical data, the rating scale of several common financial tools in terns of security, earnings and liquidity is illustrated as below:Financial tools Security Earnings liquidityBank deposit ***** * ******National bond ****** ** **Bond ** ***** ****Share * ****** *** Foreign exchange *** *** **Property *** *** *Traditional insurance ***** * * Gold markets ****** * ***5.2.2 Analysis of Asset RedistributionAmong the family's interest- earnings asset, fixed interest type of products accounts for 7%,equity asset takes about 56% and the investment real estate - 35%. We can figure out that the family's interest-earning assets are mainly concentrated on the financial product of shares,bond and funds.As the family is at the stage of pre-retirement and they are moderately conservative investors,the familyisundertakingtheaggressively risky investment portfolio according to the current asset allocation. As the share market is dynamic in recent years, though the high returns does exist, the risks accompanying the high returns seems a little high. Beside, after retirement, the work related income will reduce to a large degree, the income resources will drop quickly, the capital gain rate may also fall slightly, the structure of the whole investment portfolio should be adjusted to a more stable one to achieve a stable process to add value to assets.We suggest that :●Reduce the amount of fixed-interest deposit and increase the fund into securities andmanaged funds;●Increase the investment into gold market. Because of the price of gold being alwayopposite to that of most of capitals and its security, besieds the proportions of investment estate and shares & bonds have been relatively high, the diversification across a wider range asset classes which is negatively correlated to other markets can reduce the overall risk of the portfolio and improve the ability to beat current inflation effectively.●Increase the international investments, though the risk is medium to high in the long term,yet excellent for diversification as natural hedge.5.2.3 Recommendations of Asset RedistributionThe proportion of asset allocation after adjustmentThe reasons of this investment portfolioInvestment portfolioInvestment type Proportion ReasonQDIIfund 10%Natural hedge to domestic risks,preparation for superannuationDomestic equity funds 15%High risk with high return,good liquiditySuitable to beat inflationBond Fund 25%Better return with lower risks that shares，sensitive to policies,low liquidity with shares but moderate withproperties,can be invested in by managed funds Investment property 15％Medium risk;can achieve capital gain and beat inflation;medium to high return ratemoderated correlated with sharesPaper Gold 25％Good to beat inflationHigh securityLow correlation with other invsetmentsIn this way, the investment portfolio can achieve a higher return by diversification, simultaneously, reduction in the overall risks compared to the old investment portfolio, the security of principal, a wider diversification across diversified assets classes by managed fund which provide a considerate return with reasonable management costs.5.2.4 Recommendations of Family Insurance5.2.5 Recommendations of House Purchasing Plan21。