Financial Planning

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Financial Planning YOU
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What is Financial Planning?

• Financial Planning is the process of setting,
  planning, achieving and reviewing your life goals
  in different stages through the proper management
  of your finances.
• Source from IFPHK

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What is Financial Planning? (contd)

• It also helps people to accumulate assets, to
  grow assets and ensure their assets are under
  protection
• A comprehensive Financial Planning helps people
  to prepare for the unexpected life events e.g.
  illness or disability

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Scope of Services

• The comprehensive approach to financial planning
  provides for an initial analysis of the clients
  total financial well-being both now and into
  the future.

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Scope of Services

• The comprehensive financial planning approach
  addresses the areas of investment, estate
  planning, insurance risk management, income and
  expenditure, wealth accumulation and taxation.

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The Work of Financial Planner

• Financial Planners help people achieve their
  financial goals, whether it be buying a home,
  saving for their childrens education, investing
  their hard earned money, managing debt, or
  planning for retirement.

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The Work of Financial Planner

• Financial Planners help clients to
• Make informed decisions about their money and how
  it can be used to best advantage
• Develop a sound financial plan covering all
  aspects of their financial well-being
• Choose products that meet their specific needs
• Review their financial situation on a regular
  basis and revise their financial plans as
  necessary

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Purpose for conducting Financial Planning

• Fulfilling Dreams plan to make dreams come
  true
• For example Purchasing property, cars, reducing
  liability, travel etc
• When and how to make it becomes truePlan early,
  enjoy life later

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Benefits of conducting Financial Planning

• Prepare for the unexpected
• Fulfill the goals in different stages
• Improve financial situation

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Financial Needs in Life-stage
Life Cycle
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Life Goals

• Include buying a home, getting married, raising
  children and planning for their education,
  insuring yourself and your family, setting aside
  money for retirement and investing it, estate and
  tax planning, etc
• Are not limited to personal matters they may
  involve starting a business or joining a
  partnership, etc

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Time Horizon of Financial Planning

• Short-term
• Less than 5 years
• E.g. house deposit, buy a car, plan for holiday,
  reduce personal / family expense by 10
• Medium-term
• 5 10 years
• E.g. mortgage reduction, savings for childrens
  education
• Long-term
• Over 10 years
• E.g. retirement, financial independence, estate
  planning

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Key Scopes of Financial Planning
Investment Planning
Insurance Planning
Cash Credit Management
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Cash Credit Management
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Most common ways of using creditLoans and
Credit Cards
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Types of Loan

• Clean Loan
• Personal Installment Loan
• Personal Overdraft
• Secured Loan
• Home Mortgage Loan
• Car Loan
• Secured Overdraft

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What is a loan?
Loan principal
Borrower
Lender
Repayments interest
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Credit card
Credit Card with a revolving credit limit
Card issuer
Cardholder
Monthly payments
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Cash Credit Management

• Keep planning your Spending vs. Income
• Understand Needs Wants before Spending
• Proper use of Credit Card or Loan Product

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Insurance Planning
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Insurance Planning

• Purpose
• Ensure the existing standard of living if income
  discontinues
• Protect the things you own
• Achieving your financial goals even in the worse
  scenario
• Cover you liability

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Types of Insurance

• Life Insurance
• Death Disability personal family income
• Assets
• Your property, household contents, personal
  belongings.
• Liability
• Any harm, loss, or damage to other people or
  their property that you are legally liable for
  their losses.
• Accident
• Medical hospital expenses and loss of earnings
  resulted from accidental injury.
• Medical and Hospital Insurance
• Medical expenses and hospital expenses in the
  event of hospitalization or prolonged critical
  sickness
• Out-patient expenses

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Different Types of Life Insurance

• Term Life Insurance
• No saving element
• Traditional Life insurance
• Guarantee Cash Value Non guarantee dividend
• Investment Link Life Insurance
• Cash Value depends on investment performance

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• Life insurance is not a luxury.
• Its as basic as food, clothing or shelter

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I dont need insurance!
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Forms of General Insurance (covering assets,
liability, and accident)

• Home
• Travel
• Motor Vehicle
• Accident
• Domestic Helper

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Forms of Medical and Hospital Insurance

• Hospital Expenses
• Hospital Cash
• Out-patient

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Investment Planning
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Important Concepts

• Inflation (????)

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Power of Compounding HK5,000 / Monthstarting
at age 35 with 0, 5, 10, 15 return p.a.
HK1.8M HK4M HK11M HK30M
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Cost of Delay HK5,000 / MonthStarting at age
35, 45, vs 55 at 5 return p.a.
HK4M HK2M HK900K
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Important Concepts

• Risk Return (???????)
• What is your Risk Tolerance Level (??????)

Will you sleep well?
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Important Concepts

• Factors in accessing Risk Tolerance level
• Age
• Education background
• Personal characters
• Financial situation
• Investment objectives
• Investment experiences

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Major investment vehicles

• Time Deposit (????)
• Bond (??)
• Certificate of Deposit (???)
• Stock (??)
• Unit Trust (??)
• Property (??)

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• High Risk High Return ????

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HSI Performance (1987-2006)
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HSI 1-Year Return Distribution (1987-2006)

• Mean Return 17.5
• Probability of positive Return 65

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Benefit of Diversification
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Efficient Frontier and Optimisation
Source Ibbotson
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Optimal Asset Allocation
Asset Class Stable Balanced Growth Aggressive Growth
World Investment Grade Bond 80 22
Global High Yield Bond 20 17 13
Emerging Markets Bond 10 10
US Equity 16 17 30
European Equity 11 14 10
Emerging Markets Equity 15 24 30
HK Equity 9 22 30
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Historical Performance of Optimised Portfolio
Source Ibbotson
Stable Balanced Growth Aggressive
Growth Standard Deviation 6 11 17 21
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• High Risk ? High Return

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Important Concepts

• Time Horizon (???)

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Important Concepts

• Time Horizon (???)

Index
Time
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Important Concepts

• Time Horizon (???)

• The longer the time horizon, the more options an
  investor will have to reduce or manage risk

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To keep your learning continue, please visit our
HSBC Living Finance Website ???????
www.hsbc.com.hk/livingfinance
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Thank You
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