个人财务与投资分析.docx
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个人财务与投资分析.docx
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个人财务与投资分析
SuggestionsonAndrew’sinvestment
1.Introduction
Tohavecomfortablelife,itisimportantforonetoearnmore,butnolessistherightmanagementofmoney,asacclaimedbyCarlos(2009).Andrewisfacingtheproblemofmanaginghismoneyeffectively,sothisreportiswrittentogivehimsomesuggestions.Beforewriting,theworkofreferringtotheintroductionofhissituationandthecheckingoftheinternetforinformationofproperfinancialproductsandserviceshasbeendonecarefully.
Aswaswrittentoillustratethefactthathowtoscheduleyourfinanceandhowtoinvestefficiently,thisreportisnotonlyfitAndrewverywellbutwillalsobehelpfulforsomeonewhoisunfamiliarwithfinancialservicesandproductsbutwanttomanagetheirwealthmoreefficiency.
ThereportfirstlyanalyzedthefinancialstructureofAndrew;inaddition,ItworkedoutthefuturefinancialneedsofAndrew;then,Itcheckedtofindproperfinancialproductsorservicesmainlybyinternet;andfinally,ItcomeupwithaconclusionwhichincludesaseriesoffinancialproductsandservicesthatfitsAndrewwell,alsoIthelpedhimonhowtodealwithiteffectively.
2.Analysisoffinancialservices
2.1CurrentfinancialstructureofAndrew
Savings
Account
£5,000
Currentaccount
£1,800
RoyalBankofScotland
£60,000
Prudential
£6,000
AberdeenassetManagement
£30,000
Interest
Income
Dividends
$500/month
Investment
?
?
?
Portfolio
Pensions
Table1.Andrew’sfinancialstructure
Formtable1wecanclearlyknowwhatAndrewhasandhowmucharetheytoinvestment.Thecalculationofhisassetsandnetincomeindetailisasfollowing:
Ashehasbuyapersonalpensionforfiveyears,andhedoescurrentlypay6%ofhisgrosssalaryintoit,sointotalhehasput$14400intothepersonalpensionschedule.
AccordingtotheTaxreliefonpersonalpensions,heendsuptohave$18000inhispensionpot.
Hisassetsincludesomeordinarysharesofthreecompanies,moneyinbankaccountsandaflat.
Thenumberofordinarysharesisasfollowing:
AberdeenAssetManagement
30,000
Prudential
6,000
RoyalBankofScotland
60,000
Moneyinhiscurrentaccountis£1,800andinhiseasy-accesssavingsaccountis£5,000.Theflatisa2-bedroomflatnearthecentreofEdinburgh.
Hisdebtisthemortgageofhisflattopayinfiveyears.
Hemaypaytaxincludeincometaxandtaxonsavesandinvestments.
AccordingtotherulefromthewebsiteofUK(2011),tocalculatehistaxonincome,weshouldfirstlycalculateoutthetaxableincomewhichisgrossincomeofsalariesandinvestment;thenlessdebtandpensioncontributions,andlastlytofindtherightbasicratetodothefinalcalculation.Theprocessofcalculationisillustratedasfollowing,Andrewandcalculatesitoutbyhimselfwithfurtherinformationonhisfinancialcondition.HecanalsosearchforonlinehelpbyvisitingthewebsiteofHMRCOnlineServices.
TaxableIncome£48,000
LessPersonalAllowance?
?
?
LessPensionContributions£3,600
Incometaxchargeableon?
?
?
BasicRateatthefittestlevel?
?
?
Taxpayable=?
?
?
Taxrateonearningsbydifferentwayorondifferentfinancialproductsareusuallydifferentfromeachother.Anyinterestearned(onsavingsaccounts,certaintypesofOEICetc.)isusuallytaxedat20%,whileinvestmentincomeintheformofdividendsfromcompanyshares,forexample,isonlytaxedat10%(Arthur,2009).Whenhesellhisassets,suchashisflatorhisordinaryshareshehastopayforaCapitalGainTaxatthetaxrateof18%.
Hisincomeincludeshisafter-taxsalary,dividendsandinterestsfromhisbankingaccount.Butmoreattentionshouldbepayonabouthisnetincomeortosaythecashflowhecanmoistertoinvest.Hehas$500permonthleftoverfromhissalarythathecansaveorinvestelsewhere,soitaddupto$6000everyyearhecancollecttosaveorinvestelsewhere,thisishisnetincomeviahissalary.Hecanalsoreceivesomedividendsbyhisordinarysharethoughstocksheownandintereststhoughhiscurrentaccountandeasy-accesssavingsaccount.Interestsofhiscurrentaccountandhiseasy-accesssavingsaccountarevariousfromdifferentbanksandtimetotime,butAndrewandeasilyfindthemfromthewebsiteofthegovernmentofUK.
2.2futurefinancialambitionsofAndrew
Hewishestousethefundshehasavailabletotraveltheworldforatleasttwoyearswhenheretires,sotheinvestmenttermssupposedtobetotally10-12yearsandofcoursehesupposethemuchrewardthebetter.
Hehastopayformortgageforhisflatinthenextfiveyears,soheshouldbeclarifyinthefirst5yearswhileinthelast5to7years.Inthelast5to7yearshecaninvestintosomefinancialproductswhichismoreriskybesidesremainssomemoneyforhisliving.Afterbackingfromhistravelaroundtheworld,Andrewhastoplanforhisrestlife,ashehastohaveaflattolivein,butdonotneedoneafterhisdeath,IsuggesthimusingReverseAnnuityofRealEstateandlifeinsurance.
Sothisreportsuggestshimtodividehisinvestmenttermintothree.Thefirstoneishisfirstfiveyears,thesecondoneishisother5to7years,andthethirdoneisfromhisbackoftraveltohisdeath.
2.3RangeofproductsavailabletoAndrew
Thefinancialsectorincludesbanks,insurancecompanies,financehouses,investmenttrusts,fundmanagers,thestockexchangeandsoon.Theyprovidemanyfinancingtoolsincludeinvestorshares,bonds,andwarrantsandsoon.AshehasnoobviousinclinesthatallthesefinancialproductsandtheirportfolioscanbeavailabletoAndrew.
InformationindetailsoffinancialproductswhichmayfitAndrewisasfollowing,
Pensions:
Pensionsaredesignedtoprovideregularincomeforpeoplewhentheyretired.Blackburn(2007)haddiscussedaglobalpensionplanwhichincludesavariouskindsofpensionswhichsuggestedthatTherearereallymanydifferenttypesofpensions,andtheyaretraditionallybeenmanagedbypensionfundsandinsurance.Now,letuspracticetofindhowthetaxreliefonpersonalpensionsworks:
ifAndrewput80poundintohispersonalpensionschedule,hecanendsupwiththerighttoclaimthathecanget100poundinhispensionpot.Thatistosaytheinvestorofthepensioncanclaimtaxbackfromthegovernmentatthebasicrateof20%.
Tocheckwhetheryoucangetastatepension,youcanfindmoreinformationindetailsbythewebsiteofUKgovernment.Youcanalsofindinformationonpersonalpensioninvestmentthere.Youcanbuypensionsthoughtwoways:
gettingonethroughyourjob,orsettingupyourown.Also,youcanchooseboth.
ReverseAnnuityofRealEstate:
Itisafinancialproductmainlydesignedforretirepersons.Itworksinthefollowingway:
whenapersonretires,hecangetapaymentfromthebankforacertainyear,oruntilhisdeath.Theninthefinaloftheterm,orwhentheinvestordies,thebankwillgettherealestate.
Lifeinsuranceisthemostimportantwaytodealwithuncertainsituations,especiallyforoldpeoplewhoarereallyeasytobeill.AlsoitfitsAndrewwellwhenhehavingthetravelallovertheworld.Hecangetinformationeasilyfromtheinsurancecompaniesoronlineservicesofinsuranceinstitutions.
Suitabletax-freeproductsinclude:
fixedratesfundandpremiumbandsofbanksandISAsandNationalSavings&otherInvestments.Theyarealwaysservebythebank,orhavecloserelationshipwiththegovernment.Theyarealwaysfinancialproductswithlowriskandlowreward.
Astheveryfastdevelopmentoffinancialproducts,nowdaysjustlikeBaddepudi(2007)comesupwith,otherimportantfinancialproductssuchasITs,UTsandOEICsareplayingamoreandmoreimportantroleintheportfolio.
IThereisshortforinvestmentTrustwhichisapubliclimitedcompanytosellitsassetsbysharesinthesecondarymarket,itmostlyusedintheUK.ITsareclose-endedfund.InfactITisnotinfacta“trust”butaseparatelegalpersonoracompanyinthesenseoflaw.Itoperatesandtradeslikeanyotherquotedcompany.Peopleholditbyshareswhicharetradedinthesecondarymarketandthesharepriceisdeterminedbysupplyanddemandmonthly.IthaslowriskbuthighrewardwhencomparedwithUTsandOEICs.
UTistheabbreviationofUnitTrustwhichisequaltoUnitInvestmentTrust.Infact,UTisaTrustwhichbrokendownaportfoliowhichincludeslotsofmoneyintounit,thisiswherethedifferencesliesbetweenUTandmutualfund,accordingtoSharpe(1996).Itissoldbyunitanditiseasyandcheaptotrade.Foritsaverageriskisequaltotheportfolioitcomesfromwhichislow,itsrewardisalsolow.
Themanagementcompanyplaysaveryimportantroleforaunittrusttobesuccessful.Themanagementcompanygetssharesformcompaniesandtheyputthemtogethertoformacapitalpool,thentheycreateUTsbydividedthecapitalpoolintounit.ThemanagementcompanyburdenstheresponsibilitytoadvertisingandsellingtheUTs,andtheymakemoneybysellingUTs.TherearelotstypesofUTs,amongwhichthemostcommonarecashequivalents,property,mortgagesandsecurities.ExpensesforinvestingUTsincludeoperatingexpensesandsaleschargesandentranceorexitfees.TheoperatingexpensesofUTsarelowbecausetheyarenotbuyingorsellingbyshares.ButdifferentfrommanyotherfinancialproductsnamelyITsorOEICs,UTsalwayshasasalechargesandentranceorexitfees.ItisalsocalledparticipateTrustsforboththeinvestorandtheownerofthecapitalofunittrustssharestherewardsandrisks.
OEICisequaltoitsfullname--Open-EndedInvestmentCompany.ItoperatesandtradesbyshareslikeIT,butitisanopencompan
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