Personal Financial Planning Guide

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Personal Financial Planning Guide

• Chapter 3-6 Building Wealth through Investment
  Planning

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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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Step 1 Financial Goals

• Factors affecting financial goals
• __________________ horizon
• __________________
• Your _________________________ situation
• Personal profile

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Personal Profile

• Your investment profile includes
• _______________________
• _______________________
• _______________________ needs
• _______________________ needs
• _______________ rate
• _______________ tolerance

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Step 2 Investment Vehicles

• Major categories of investments
• Cash
• Bonds
• Stocks
• Other (real estate, gold, etc.)

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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

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Categories of Investments Bonds

• Bonds are debt instruments issued by corporations
  and governments.
• Advantages of bonds
• Regular _________________
• Diversify other investments

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Categories of Investments Bonds

• Types of bonds
• Corporate
• US Government
• Municipal
• Mortgage-backed securities

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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.

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Categories of Investments Stocks

• Common stock provides return through dividends
  and capital gains.

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Step 3 Know Financial Markets and Concepts

• Important financial concepts
• ________________
• ________________
• Portfolio structure/asset allocation

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Financial Concepts Return

• Historical returns can be observed and measured,
  but what is important to investors are
  ____________________ returns.

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Financial Concepts Risk

• Investments, by risk (low to high)
• Cash
• US government securities
• Investment grade bonds (corp., muni)
• Stock and junk bonds

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Financial Concepts Portfolio Structure

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

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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

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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
  _________________________________________.

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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.

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Step 5 Implement Your Strategy

• Implementing your financial plan includes
• Who to invest with (how to buy)
• When to buy

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Implement Your Strategy

• Your financial plan can be implemented with
• A financial planner
• A broker
• Professional money manager
• Mutual funds

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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.

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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.

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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.

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Mutual Funds

• Mutual funds offer
• Professional management
• Record keeping
• _______________________
• Low _____________________ costs (in some cases)

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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

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Types of Mutual Funds

• Mutual funds can also be classified as
• Domestic
• Foreign
• World

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Mutual Funds

• Cost of investing in mutual funds include
• Front-end and back-end loads
• Annual management fees
• 12 b-1 fees

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Mutual Fund Information

• Sources of info on mutual funds include
• Morningstar
• Value Line
• Investment Company Institute
• Popular press (Wall Street Journal, Barrons,
  Business Week)
• Prospectus
• Funds website

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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