Life Cycle Planning Flashcards
What should be considered in investment portfolio construction?
Risk tolerance
Specific investment goals
Life cycle stage
Types of investors:
Aggressive Investor
Investor Who Needs Income
Conservative Investor
What are considered the 3 major asset classes across which an investor may allocate funds?
Stocks, bonds, and cash
______ is the best method to determine the risk involved in a portfolio.
Asset allocation
_____ 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.
Asset allocation
Constructing a portfolio begins with a plan that considers the ____ and _______.
risk-tolerance level
investment objectives
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.
aggressive
An investor _____ must select vehicles that provide high current returns.
who needs income
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.
cautious
Rebalancing: The rebalancing approaches used are: _____ratio plan and _____ ratio plan.
Constant and Variable
____ is an important strategy used by investors to help reduce this risk.
Diversification
_____ 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.
Time
What are the priorities of a young Adult?
As a young adult, Consumption and Savings Planning and Disability Insurance Planning should be an integral part of your strategy to achieve lifelong goals.
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.
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.
What are the priorities in the family Development Phase?
Retirement planning, insurance planning and estate planning are the paramount needs of this phase.
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.
The family maturity phase
Retirement Prioritise:
Tax reduction, protection from inflation, safety, income and estate planning become key to retired individuals.
What is the significance of understanding the financial life cycle?
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.
What occurs during Stage 1 of the financial life cycle?
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.
What are main priorities during Stage 2 of the financial life cycle?
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.
Life events such as _____ and _____ can have a profound impact on an individual’s financial planning.
marriage and children
What are main priorities during Stage 3 of the financial life cycle?
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.
what are Money Issues that a couple needs to address?
how you will handle money, such as checking accounts and credit cards
Ages within Life Cycle:
Young Adult (18-25)
Family Formation (26-35)
Family Development (36-49)
Family Maturity (50-60)
Retirement (60-?)
The key steps to financial planning on starting a family are:
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.
_______ adjusts the portfolio back to its target weight
Constant ratio plan
______ it stacks the proportions in favor of assets that have performed poorly in recent periods.
Variable ratio plan
