Q1. You want to retire in 40 years and you must start planning now. You understand...

Q1. You want to retire in 40 years and you must start planning now. You understand that it is time to prepare an analysis for you.

a) What approach will you use to advise yourself.

b) What is your specific suitability profile?

c) What is your investment plan for retirement?

d) What will be your asset allocation and what is your expected return throughout your life for each allocation?

Solutions

Expert Solution

a) What approach will you use to advise yourself.

Approach to financial advisory for my own retirement:

i. First need to ascertain the expected retirement savings
ii. Ascertain the Cash Flows that are available at the moment, and expected avenues of cash flows I can tap on to.
iii. Find out the return on investment in US economy, and find out how it compares to the inflation rates expected.
iv. Based on the same, find the cash flows that needs to be invested today, to achieve the return. And prepare to save X dolllars on a monthly basis.

b) What is your specific suitability profile?

i. Profile - Risk based rating
We need to classify self as high medium and low risk.
Based on high risk medium need to identify investment options that matches your risk profile.

Based on my age and risk appetite, need to identify the risk profile and for me it is medium high, considering the no. of years of employment left, and risk appetite.

(High risk implies high reward - and the more risk appetite you have, there is a greater chance of losing or gaining)

c) What is your investment plan for retirement?

Investment plan :

i. Fixed amounts of investments in SIP (dollar cost averaging)
ii. 50% of the investments in Bank Deposits / Bonds
iii. 5-10 Blue chip stocks across industries

The above will be risk diversified enough as an invsetment plan.

d) What will be your asset allocation and what is your expected return throughout your life for each allocation?

Asset Allocation :

Equity - 30-35% - Expected Return 10-11%
Debt - 20-25% - Expected Return - 1.5%
Gold - 10% - Expected Return - 10-12%
Cash - 30-40% - Expected Return - inflation will be the negative returns.

jeff jeffy answered 1 year ago

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