The Differences between Various Investment Opportunities - Term Paper Example

Limited Scope Statement of Advice (Financial Plan): Financial Planning Issues raised during the Interview Name Institution Date Question 6 Report: Financial Planning issues raised during the Meeting In our first meeting we were able to introduce ourselves to each other and get to know about our future relationship. During that meeting I left a copy of a financial services guide that are offered by our company and from our introductory meeting there were questions that were raised and some of them included; what an offset account is, the benefits of having a structure for your business specifically the differences between a company and a sole proprietorship, the differences between various investment opportunities such as managed funds, exchange traded funds, investment companies as well as family trust. You also asked about socially responsible investment opportunities. This report will cover all those questions as well as share with you more information on financial planning. Introduction on financial planning Financial planning refers to a sequence of steps pr stages that have been set out by individuals, businesses or even organizations whose ultimate goal is financial progression. Financial planning includes a variety of steps or activities some of which you have mentioned such as clearing out your credit debts before the arrival of your children as well as making investments in various financial opportunities. The main objective of a financial plan is to allocate present as well as future earnings or income to your various needs and wants as a couple and also a family in the future. A financial plan is also an investment plan because it helps you as a couple and as a family to also reserve some of your present and future earnings for your future needs such as education funds, retirement, estate planning and also management of risk among others (Meigs, Walter and Robert, 2000). There are a number of assumptions that we are making as we prepare this report for you (Chris and Fiona) and these include; you having read all the information provided in our financial services guide and that you are aware of the products that we offer our esteemed clients, the figures that you provided me with have not changed and also the fact that we are going to have a second meeting we are assuming that you have chosen our company to help you make your financial plans to ensure that your future and that of your children is well catered for. We are also to answer the questions that you had risen in our previous meeting and finally give you advice on the best investment opportunities for you as a couple and a future family (Mittra, Sahu, & Crane, 2007). What is an Offset Account? An offset account is a savings account that can be used to offset or cancel out your loan account. The new account created or your normal transactional account can be used to gradually reduce your loan account and during that process the account will not bear you any interest unlike other savings accounts. Given that as a couple you already have $5000 in a joint account for your everyday banking that bears you zero interest, you could use that account to gradually cancel out the loan you took to purchase the house. An offset account also helps to reduce the interest payable at the end of the month given the gradual reduction from the offset account reduces the principle amount which ultimately reduces the interest charge that is calculated on the loan that you have taken (Australian and New Zealand Banking Group, 2014). Benefits of having a business structure (a sole proprietorship and a company) Well, Chris it is important for you to be aware of the various business structures available and use them as opportunities for growth to your business. As a sole trader you enjoy a number of privileges such as independence to run the business as you wish, any profits made from the running of your business are your to enjoy that is you do not have share them with anyone else except for Fiona of course. There are fewer legal requirements required during the starting and running of sole proprietorships and also any decisions to be made in the business are made faster since there is no need for consultation with other parties. However, as many benefits a sole trader may have there is one major disadvantage and that is lack of protection from the liabilities of the business for the sole trader, your personal property will also be subjected to debts that will be incurred by the business if you are unable to pay those debts (Carter, 2014). Another business structure that you should consider Chris is a company structure which scholars and researchers also call or refer to as limited liability companies. A limited liability company protects your personal property from any debts incurred by the business and also although the company will have other members running and making decisions for the business sharing of profits can be shared as per agreements by the members regardless of the share of contribution they have made. A limited liability company offers a better chance of growth compared to a sole trader because more members mean ability to raise more capital. However, a limited liability company has challenges during its formation and also its running and some of these challenges include; a limited liability company is expensive to form and also the legal processes involved are long and tiresome for the members. The main or largest shareholder of the company is also at a disadvantage because the liability and obligations of the company may be extended to his personal properties (Carter, 2014). Therefore, Chris you should weigh the benefits and dangers of both business structures and establish a business structure for your business. An organized business will help ease the management of the benefits and also open up more opportunities for growth and expansion that you may have overlooked because of lack of a business structure. Investment opportunities; managed funds, exchange traded funds, listed investment companies and family trusts. Managed funds; managed funds involves pooling of your investments or your money by an agent and then agent or the investment manager uses the funds to buy and sell shares in the exchange market on your behalf. At the end of the trading period the investment manager then distributes the earnings among the investors. Exchange traded funds; exchange traded funds also operate similar to managed funds with the main difference being that the investments you will make are traded in the secondary market unlike in managed funds where the trading takes place in the primary market (Australian Securities and Investment Commission, 2014). Listed investment companies; listed investment companies are established entities that will allow you as investors to have a diverse portfolio of investments unlike managed funds and exchange traded funds. The portfolio includes shares, interest bearing deposits and also properties among others. Another difference that has also been established between listed investment companies and managed funds is that the manager does not have complete autonomy over your investments because you are given an opportunity to look at the investment portfolio and chose an investment proposal that suits your own objectives (Australian Investors Association, 2012). Family trust funds; family trusts can also be used as an investment opportunity for people. It involves parties putting their funds in assets or accounts under a different person’s name who is a member of their family especially their children. The trust fund will protect the assets or funds set aside as they will now belong to the person under the name it was registered under (Public Trust, 2014). As Chris had asked during our first meeting ‘why not keep the shares, assets or funds in your own account and then transfer them into the child’s name after they he or she has grown up?’ well the answer is that since the future is unpredictable you might be tempted to use the funds, shares or assets but in a family trust you are sure to be restricted from using them thus saving them for the future. Socially responsible investment opportunities A socially responsible investment opportunity is a concept in investment that seeks to achieve both financial gains as well as provide socially responsible benefits. These opportunities aim to promote messages to the society such as environmental consciousness, consumer protection, diversity, human rights among other important messages that will ensure a safe and protected environment, social justice as well as good governance. Socially responsible investing will surely reflect your own personalities and interests and not just seek to make financial gains for you and your family. Conclusion It is very important for both of you to make investments so as to ensure financial security for yourselves as well as for your future children. This is because there are many factors that may be unpredictable and thus cause many challenges for you in the future while meeting your daily expenses and also the needs and wants of you and your family such as losing one’s job, accidents in the work place and even death among other factors. Therefore, we encourage you to look at the various investment opportunities and decide on the best portfolio for yourself and your future generations. List of References Lemke, L., 2013, Regulation of Investment Advisors. Thomson West, New York. Hillel, G. 1983, New Directions in the Investment and Control of Pension Funds. Washington DC: Investor Research Responsibility Centre. Public Trust, 2014, What is a family trust? Retrieved on 14th August, 2014 from http://www.publictrust.co.nz/life-events/planning-retirement/family-trust/what-is-a-family-trust Australian Investors Association, 2012, Listed Investment Companies (LICs). Retrieved on 14th August, 2014 from http://www.investors.asn.au/education/shares/listed-investment-companies-lics/ Australian Securities and Investment Commission, (2014). Managed funds. Retrieved on 14th August, 2014 from http://www.moneysmart.gov.au/investing/managed-funds Australian and New Zealand Banking Group, (2014). Offset Account. Retrieved on 14th August, 2014 from http://www.anz.com/personal/home-loans/our-home-loans/extras/offset-account/ Cater, Christopher. (2014). Advantages and disadvantages of different Business Structures. Retrieved on 14th August, 2014 from http://wwww.smallbusiness.chron.com/advantages-disadvantages-different-business-structures-21149.html Meigs, Walter and Robert, F. (2000). Financial Accounting 4th Edition. London: McGraw Hill Book Company. Mittra Sid, Sahu Anandi, and Crane Robert. (2007). Practicing Financial Planning for Professionals. Rochester: Rochester Hills Publishing, Inc. Bititci, U, Turner, T, J and Ball, P. (1999). The Viable Business Structure for Managing Agility. International Journal of Agile Management Systems. Vol. 1, no. 3, pp. 190-199. Read More