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Personal Financial Planning Guide. Chapter 3-6: Building Wealth through Investment Planning. Investment Planning Steps. Steps to investment planning: Set goals Know investment vehicles Know financial markets and concepts Develop strategy Implement strategy Monitor performance.

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personal financial planning guide

Personal Financial Planning Guide

Chapter 3-6: Building Wealth through Investment Planning

investment planning steps
Investment Planning Steps

Steps to investment planning:

  • Set goals
  • Know investment vehicles
  • Know financial markets and concepts
  • Develop strategy
  • Implement strategy
  • Monitor performance
step 1 financial goals
Step 1: Financial Goals

Factors affecting financial goals:

  • __________________ horizon
  • __________________
  • Your _________________________ situation
  • Personal profile
personal profile
Personal Profile

Your investment profile includes

  • _______________________
  • _______________________
  • _______________________ needs
  • _______________________ needs
  • _______________ rate
  • _______________ tolerance
step 2 investment vehicles
Step 2: Investment Vehicles

Major categories of investments

  • Cash
  • Bonds
  • Stocks
  • Other (real estate, gold, etc.)
categories of investments cash
Categories of Investments: Cash
  • Cash includes any asset with high liquidity and little or no risk.
  • Examples:
    • Bank accounts
    • __________________________ mutual funds
    • US Treasury bills
    • Savings bonds
categories of investments bonds
Categories of Investments: Bonds
  • Bonds are debt instruments issued by corporations and governments.
  • Advantages of bonds
    • Regular _________________
    • Diversify other investments
categories of investments bonds1
Categories of Investments: Bonds

Types of bonds

  • Corporate
  • US Government
  • Municipal
  • Mortgage-backed securities
categories of investments municipal bonds
Categories of Investments: Municipal Bonds
  • The interest earned on municipal bonds is frequently exempt from ______________ ___________.
  • In choosing between bonds, you must always consider the after-tax return.
  • Municipal bonds:
    • Good for investors with high _____________.
    • Bad in a ______________________ account.
categories of investments stocks
Categories of Investments: Stocks
  • Common stock provides return through dividends and capital gains.
step 3 know financial markets and concepts
Step 3: Know Financial Markets and Concepts

Important financial concepts:

  • ________________
  • ________________
  • Portfolio structure/asset allocation
financial concepts return
Financial Concepts: Return
  • Historical returns can be observed and measured, but what is important to investors are ____________________ returns.
financial concepts risk
Financial Concepts: Risk

Investments, by risk (low to high)

  • Cash
  • US government securities
  • Investment grade bonds (corp., muni)
  • Stock and junk bonds
financial concepts portfolio structure
Financial Concepts: Portfolio Structure

Diversification by itself does not increase returns. However, by diversifying, you reduce ________________.

step 4 develop investment strategy
Step 4: Develop Investment Strategy

One of the most important parts of your investment strategy, is ____________ ________________________:

  • Identify asset classes to be included
  • Determine % to be invested in each
  • Periodically rebalance
investment strategy cont
Investment Strategy (Cont.)
  • Another important consideration: take advantage of payroll deduction:
    • Payroll deduction makes saving and investing automatic.
    • By investing every month, you take advantage of “_________________________________________.”
investment strategy cont1
Investment Strategy (Cont.)
  • Another important consideration: take advantage of tax shelters.
    • Tax shelters (401k accounts, IRAs) ______________ payment of taxes.
    • Many employers match contributions to your retirement account.
step 5 implement your strategy
Step 5: Implement Your Strategy

Implementing your financial plan includes:

  • Who to invest with (“how to buy”)
  • When to buy
implement your strategy
Implement Your Strategy

Your financial plan can be implemented with:

  • A financial planner
  • A broker
  • Professional money manager
  • Mutual funds
implement your strategy1
Implement Your Strategy

When to buy: on a ___________________ ________________.

One of the biggest mistakes investors make is to “time the market.” This usually results in buying high and selling low.

Saving and investing through payroll deduction avoids trying to second guess which way the market is going.

step 6 monitor performance
Step 6: Monitor Performance
  • It is important to measure investment returns and to compare your returns with _____________________.
  • Investment benchmark: an index of returns.
  • Your benchmarks should be based on your __________________ allocation.
mutual funds
Mutual Funds
  • The most popular method of investing in stocks and bonds is through mutual funds.
  • When you invest in a mutual fund, you become part owner in the portfolio of securities held by the fund.
mutual funds1
Mutual Funds
  • Mutual funds offer:
    • Professional management
    • Record keeping
    • _______________________
    • Low _____________________ costs (in some cases)
types of mutual funds
Types of Mutual Funds
  • Mutual funds can be classified by the types of assets they hold:
    • Stock funds
    • Bond funds
    • Money market funds
    • Index
    • Sector
types of mutual funds1
Types of Mutual Funds
  • Mutual funds can also be classified as:
    • Domestic
    • Foreign
    • World
mutual funds2
Mutual Funds

Cost of investing in mutual funds include:

  • Front-end and back-end loads
  • Annual management fees
  • 12 b-1 fees
mutual fund information
Mutual Fund Information

Sources of info on mutual funds include:

  • Morningstar
  • Value Line
  • Investment Company Institute
  • Popular press (Wall Street Journal, Barron’s, Business Week)
  • Prospectus
  • Fund’s website
how to pick a mutual fund
How to Pick a Mutual fund

In comparing mutual funds, look for:

  • No _________________
  • Low _________________
  • Matches your objectives and ____________ tolerance
  • Tax efficiency
  • Good recent performance (3-5 years)
  • No recent change in management
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