Anwering a series of questions
Financial Planning and Investment
Bull markets refer to a period when the investor believes that the market prices will rise steadily. Bear markets, on the other hand, refer to a situation where the investor believes that the market prices will decrease in value (185).
For the financial planner to effectively advice their client, they should acquire information on where the client is currently in terms of finance. Moreover, the financial planner should also have information on where the client wants to be, and how they plan to get there. The other important information that should be acquired by the financial planner is the changes in market conditions that may affect the plan (13).
Although a financial planner requires technical attributes to succeed, they also require personal attributes. Firstly, the financial planner must have the ability to clearly identify the client’s need. Additionally, the financial planner should also have the ability to gain the trust as well as confidence of their client. High levels of professionalism together with high ethical standards are also personal attributes required by the financial planner (24).
Risk is an important consideration during financial planning and investment for both the planner and the client. Firstly, it is important because the financial planner and the client identify the possible risks that they will face. Moreover, it is also an important consideration because the financial planner can come up with strategies to minimize the chance of risk (16).
The first category of high risk investments is variability of returns which refers to the uncertainty attached to specific outcomes. The second category is loss of capital which refers to a situation where there is a higher chance that the investor will lose their initial capital investment. The other category is loss of purchasing power which refers to investments where the investor will have a higher chance of losing their purchasing power (182).
The first category of low risk investments is blue chip stocks because they have a consistent dividend. The other category is growth stocks which are expected to gain profits that can be reinvested. Speculative stocks are also low risk investments as they provide investors with high chances of gaining (192).
The risks associated with future contracts include the fact that they can result to high losses. Moreover, they are highly flexible and can be traded when exchange is open. The other risk is that it is hard to maintain cashflows as there is no income expected (173, 174).
The knowledge of inflation is very important to investors in several ways. They need this knowledge so that they can avoid exposing their investments to the risk of inflation. Moreover, they need to have the knowledge of inflation so that they can know how their financial goals are affected by inflation (64).
The importance of diversification in investment is inherent for every investor. First, the investor is able to spread the risk of their investment. For example, if there are changes in the Australian economy that will affect their investments, then the global shares will not be affected. Diversification of investments also gives the investor a chance to maximize their returns. The surplus funds from the diversified investments can be used to make more investments (180).
The first type of question that is used during interviews is the open-ended question. For example, the financial planner can ask the client a question such as, what are your current financial goals. This type of question helps the financial planner have an insight into the goals of their client. The other type of question during the interview is close-ended; for example, the financial planner can ask the client a question such as, have you ever consulted a financial planner before, and the client will be expected to give a yes or no answer. The benefit of using this question is that the financial planners can build up more questions based on the clients answer. The other type of question used during interviews is third person question; for example, the financial planner can ask the client a question such as, what investment is attractive to you. This question will help the financial planner decide on the investment choices that are viable for their client (66).
The financial planner needs to establish rapport with the client because it will be important for the overall success of the plan they come up with. The other importance of establishing rapport is that the client will confide information with the financial planner. The information acquired will help the financial planner in coming up with a effective financial plan (65).
Direct property investment refers to the purchase of physical property. Examples include residential homes, rural farms and commercial outlets. The advantages of this type of property investment include having control over the property, no fund management fees are required and there is tax effectiveness. The disadvantages include poor liquidity, high transaction costs and lack of flexibility (158).
Indirect property investment refers to the investments made through property security such as property trusts. The advantages of these investments include low entry costs, liquidity, diversification and low transaction costs. The disadvantages include high fees as well as high correlation of returns (159).
Certificate of Financial Planning and Investment- Study Guide. 2015. Print