Investment Planning

The achievement of most goals requires the accumulation of funds. Wealth accumulation is a fundamental part of the financial planning process. Goals like education and retirement funding require a consistent savings pattern, usually employing dollar-cost averaging. The time horizon for achieving each goal is also important. This will dictate the kind of investment vehicles that are most appropriate for the individual. An overriding concern would also be the risk tolerance level of the individual. Risk tolerance is a difficult quotient to quantify, but an attempt must be made to invest only in instruments that suit the individual.

A major task in investment planning is to derive a consistent rate of return. Assumptions must be made in the rate of return to reach target accumulation amounts.

The philosophy of today is asset allocation and diversification. A big question to be resolved is the percentage allocation to each asset class so that the portfolio of assets will achieve the desired rate of return while minimizing risk. Investment planning while being the most challenging is also the most exhilarating.

Children Education Planning

It is every parent's dream to see their children pursuing tertiary education. This will ensure they have a headstart in preparing themselves for their future. Your children's education goals do not happen by chance. It must be planned in advance as it can require a lot of funds. While it may not be possible to ascertain the exact course or university the children wish to pursue, an informed guess is needed.

What are your children's interest? What are they good in? What career opportunities are currently and in the future? What range of cost of education is manageable? Bear in mind always the future cost should take into account inflation and increasing charges.

A well planned education fund would not sacrifice the retirement nest egg but could compliment it instead.

Retirement Planning

An important difference between men will be their state of preparation for retirement. Financially independent people will look forward to their golden years of retirement, while the financially insecure people will live their lives in constant fear and worry. At the heart of this dichotomy is the earnest person who took retirement planning seriously, and another, who lived for today and risked financial insecurity in his later years. While you are at liberty to choose how to live your life, the wrong choice will leave you poor and destitute needing family and society's help to survive. It would be important in a society that does not have social security or unemployment benefits, like in the more developed countries of the world, to find their own support during their retirement years. As you approach retirement, there can be no more urgent task then wealth accumulation for retirement.

The principal solution to retirement planning is to get started in a savings and investment program early in your career. For most employees in Malaysia, this is quite well achieved through the compulsory savings in the Employee Provident Fund. The employer contribution of at least 12%, and the employee contribution of 11%, will add to a very reasonable lump sum. However, evidence shows that many pitfalls happen during this period, and the savings are reduced through withdrawals, low returns, financial losses in investments, and gaps in contribution due to job losses. But the biggest factor facing an EPF contributor is the impact of inflation. The increase in money supply over the years will contribute to an inflationary effect, and the EPF is not particularly constructed to handle inflation. As you save through the years, you are saving a fixed percentage based on today's income and price levels. But as you reach retirement you will now be spending your savings at new income and price levels. Therefore, it is important for a person to incorporate the inflation effect into his savings plan. Financial Planners will therefore assist the client in saving adequately for retirement.

An important aspect of retirement planning is the choice of investment vehicle, and the management of the risk and return of the various investment vehicles. There is a different risk and return profile for each asset and combining them into a potent portfolio would ensure a steady rate of return with minimum risk. Financial Planners today are more involved in choosing the right asset and fund managers for their clients as investment management is a specialized field requiring a great deal of skill and information. But above all the identification of the risk profile of the client, his needs, his financial position, will be the responsibility of the Financial Planner. Investment advisers only provide broad classification for investors to follow. The services of a Financial Planner will be useful in monitoring and reviewing investment choices. They would also assist the client in looking at the tax impact of the different asset classes and the timing of investment acquisitions and disposals. They would be able to explore with the client workable investment strategies and techniques. To achieve the difficult goal of passive income equaling the pre-retirement active income requires great skills and the assistance of a Financial Planner and his team of advisers.