Life Cycle Planning

Question 1

What should be considered in investment portfolio construction?

Answer 1

Risk tolerance
Specific investment goals
Life cycle stage

Question 2

Types of investors:

Answer 2

Aggressive Investor
Investor Who Needs Income
Conservative Investor

Question 3

What are considered the 3 major asset classes across which an investor may allocate funds?

Answer 3

Stocks, bonds, and cash

Question 4

______ is the best method to determine the risk involved in a portfolio.

Answer 4

Asset allocation

Question 5

_____ describes how your money is divided among stocks, bonds, cash, and alternatives. The objective is to increase your return on those investments while decreasing your risk.

Answer 5

Asset allocation

Question 6

Constructing a portfolio begins with a plan that considers the ____ and _______.

Answer 6

risk-tolerance level
investment objectives

Question 7

An _____ investor is likely to have a high risk-tolerance level and generally prefer future return to current return.
Investors needing income: An investor who needs income must select vehicles that provide high current returns.

Answer 7

aggressive

Question 8

An investor _____ must select vehicles that provide high current returns.

Answer 8

who needs income

Question 9

Cautious investor: A _____ investor generally has a low risk-tolerance level but, more importantly, also attaches a high priority to accumulating sufficient sums of money to achieve certain future goals.

Answer 9

cautious

Question 10

Rebalancing: The rebalancing approaches used are: _____ratio plan and _____ ratio plan.

Answer 10

Constant and Variable

Question 11

____ is an important strategy used by investors to help reduce this risk.

Answer 11

Diversification

Question 12

_____ is the easiest way to reduce the risk of investing in equities and improve the gain is to increase the time you hold on to your portfolio.

Answer 12

Time

Question 13

What are the priorities of a young Adult?

Answer 13

As a young adult, Consumption and Savings Planning and Disability Insurance Planning should be an integral part of your strategy to achieve lifelong goals.

Question 14

In the _____ phase, your planning must go beyond merely helping to fund the down payment on your home. Your children’s education, emergency funds and retirement planning must also be undertaken.

Answer 14

Family Formation: In this phase, your planning must go beyond merely helping to fund the down payment on your home. Your children’s education, emergency funds and retirement planning must also be undertaken.

Question 15

What are the priorities in the family Development Phase?

Answer 15

Retirement planning, insurance planning and estate planning are the paramount needs of this phase.

Question 16

Family Maturity: The _____ phase - is part of stage 2 of financial life cycle planning and involves a transition from the earning years, to your retirement years.

Answer 16

The family maturity phase

Question 17

Retirement Prioritise:

Answer 17

Tax reduction, protection from inflation, safety, income and estate planning become key to retired individuals.

Question 18

What is the significance of understanding the financial life cycle?

Answer 18

Helps you to better understand the timing and areas of financial concern you’ll experience.
Allows you to focus on typical concerns earlier and to plan ahead with fewer problems.

Question 18

What occurs during Stage 1 of the financial life cycle?

Answer 18

The first stage involves goal setting, insurance, home buying, and family formation in terms of planning. Preservation of the wealth already accumulated is the priority in the second stage of the life cycle.

Question 19

What are main priorities during Stage 2 of the financial life cycle?

Answer 19

Stage 2 involves fine-tuning, solidifying the retirement goals, and reviewing financial decisions like insurance protection and estate planning. Funding children’s education, home purchase and debt planning are activities of stage 1 of the life cycle.

Question 20

Life events such as _____ and _____ can have a profound impact on an individual’s financial planning.

Answer 20

marriage and children

Question 20

What are main priorities during Stage 3 of the financial life cycle?

Answer 20

Stage 3 involves ensuring continued wealth, despite not having an income. In addition, continuous reviewing of the insurance planning and estate-planning decisions become paramount.

Question 21

what are Money Issues that a couple needs to address?

Answer 21

how you will handle money, such as checking accounts and credit cards

Question 22

Ages within Life Cycle:

Answer 22

Young Adult (18-25)
Family Formation (26-35)
Family Development (36-49)
Family Maturity (50-60)
Retirement (60-?)

Question 22

The key steps to financial planning on starting a family are:

Answer 22

Update health insurance to include your child
Review life and disability insurance to ensure adequate coverage.
Investigate the use of a flexible spending account through your employer if a day care provider will care for the child.
Save adequately to cover the new baby costs. Childcare expenses should be discussed before planning for a child and included in your budget. Update your will and appoint a guardian for your child.
Review your financial plan.
Save for the child’s education early should you decide to help with higher education expenses.

Question 23

_______ adjusts the portfolio back to its target weight

Answer 23

Constant ratio plan

Question 24

______ it stacks the proportions in favor of assets that have performed poorly in recent periods.

Answer 24

Variable ratio plan