Pension Fund Investment Management - Essay Example

PENSION INVESTMENT It is not easy to escape the requirement for personal investment and financial. In this time, world economies have advanced to an extend that the affordability of the State support at times of infirmity, unemployment or old age is being questioned since it is driven in large part by the desire to adjust and adapt to the demographic challenges of unemployment, old age and other problems. Similarly, many years of economic growth have raised community’s expectations about living standards throughout an individual’s life. Therefore, as a result, people and households are realizing that they must organize, strategize and plan their own financial security and thus personal investment has become the main way or route (Mazzucato et al, 2010 p.34). Personal investment decisions are made in the context of wider economic, social, economic and policy. In addition, ethics and regulation are known to have a significant impact on the structure of distinct investment products and the nature of distinct investment plans and strategies. More so, personal investment decisions should be based on a number of factors outside an individual control such as setting of interests by financial institutions like banks and inflation and other factors within an individual control such as making choices about the mix of assets that a person holds (Mazzucato et al, 2010 p. 53). All financial planning demands or requires a comprehension of how domestic or local context-in this case a person’s particular situation – is part of broader context incorporating the role of government and economy. It is rational to argue that at some particular point in life, an individual will save. By not using our money in the present, saving gives us an opportunity to set aside resources for the future. People all over the world save differently depending on their vulnerability to unexpected changes in economic and personal conditions (Fabozzi, 1997 p. 45). Governments in the world encourage their citizens to save and cease the act of utilizing their money in present times because there are times when things change in both wider society and at personal level. Gillani’s investors should provide him with necessary financial information in order to help him implement effective financial education programs such as choosing the best method to invest in depending on the performance of economy and the interest rates that financial institutions charge. Gillani will benefit from his financial knowledge in the sense that he be in a position to attend one on one counseling sessions on his personal savings or finances thus making have lower debts and fewer delinquencies. It is important to note that risks can be calculated in the sense that people can assign possibilities or probabilities to likely future changes such as on the grounds of how results happened in the past. For example, if shares in the past have earned higher returns than bonds, then, people can assume that they will do so in the future. This kind of calculation is uncertainty that is generated by social and economic changes. The financial services sells financial products such a unit trust, life funds, saving accounts and pensions are the main products for personal savings or investments. . Investors make decisions based on information available to produce markets that price effectively. In order to make future investments, individuals must take risks considering that shares and stock are more risky to invest in but in the long run, they have higher returns than cash and bonds. It is also vital for Gillian to know that investors need to be assured that financial institutions such as banks are sane and that financial advisors and providers are acting in an ethical or moral way. This is attained via formal ways of regulation and that financial services bodies own ethical codes and practices (Fabozzi, 1997 p. 73). These codes of ethics are engineered in the context of government policies that focus to regulate the domestic and international economy in pursuit of market stability. Gillian should consider saving for retirement as a suitable financial goal. The total counts of money that she saves will determine the life she leads. Retirement is the best time to meet her financial goals and transform her aims into reality, a dream that an be achieved if she is financially stable. Social security benefits are mostly preferred but unfortunately they do not cover all the retirement life expenses. It is evident that most financial advisers suggest that you will need close to 70% of your present income to be comfortable in retirement. In contrary, most people receive only 40% of it from the security benefits. Based on how much you contributed, by means of buying taxes, the amount may be lower. Gillian needs to start saving for retirement for the reason that she cannot rely on security benefits alone for survival. In this case, Gillian already made a choice to save for retirement and thus she has t chose on the best way for her to invest in her pension. There are many ways of investing and saving, with different characteristics. Some offer capital gain, some income, some offer; others have guarantees, some lack, charges may be subsumed or explicit in the interest rates given, and tax treatment may be different. However, whichever the type of the investment, the attributes have three main features in the mode of the amount of returns, he time when the return will e paid, and the risk associated amount and the return if it is not as expected. Investment choices depend on the social, economic and political circumstances surrounding the investor. It also depends crucial on the method by which the investor assumes to make her decisions. Investors will always choose an investment that offers lower risks but with a higher return. Considering government policies and Gallin’s social circumstances, shares are the best way in which she can invest her pension funds. By being a share holder of a company, she becomes its part owner, basing on the number of shares she has. Most people own shares in their specific small businesses. Moreover, so long as hey own over half of the total shares, they receive the lion’s share in addition to the power to control the running of the business. Quoted shares are an advantage to the shareholder since they can be readily sold and bought on a stock market. By investing in share, Gillian will be able to get dividends, which are the company’s profits given to members but they can vary in income tax. For instance, the profits in UK have already been taxed, and therefore the amount given to shareholders is treated as a net total and comes with a tax credit, which exactly satisfies most taxpayers’ liabilities. However, capital benefits are taxable. Shares or stock investment are the preferred investment with the reason that total return depends on the technical kind of the share held, though far more on the type of the concerned company. For example, high growth organizations in new technology fields may not pay dividends for a long time, and so investors will be looking for return by use of an increasing share price to get profit on sales (Baker, 2004 p. 61-63). Moreover, capital risks are high, meaning that losses are highly probable but gains can also be larger. In terms of volatility, stocks are more volatile as compared to bonds. If a shareholders has more than 10 years before her retirement, she stock funds will reward her with higher returns despite the fact that her plan value may be dip, so Gillan should invest 80% of her plan in stock funds. This is facilitated by the fact that all his children are no longer dependent on him for their survival; therefore, investing in stock funds will yield more profits than bonds and cash. Risks are always present in any form of investment. However, any evaluation used or whatever forecast of return price used, it will not necessarily turn out accurate and might be just one of the possible outcomes (Baker, 2004 78). There is no investment that is risk-free, as its return should include some fixed payments on the set future dates which has no possibility of a varying outcome. Even if there is a guarantee for a fixed return on a set date, chances are that the provider may default. However, most governments with well developed and large economies neglect such default risks. This is for the reason that, as a last resort, the government could raise some money by printing extra cash or colleting from taxpayers to pay off the debts. In this sense stock shares are fairly short-term. References Baker, A 2004, Managing Pension and Retirement Plans: A Guide for Employers, Administrators, and Other Fiduciaries, Oxford University Press, Oxford. Fabozzi, F 1997, Pension Fund Investment Management, Wiley: New York. Mazzucato, M, Lowi, J & Trigg, A, 2010, Personal Investment - financial planning in an Uncertain world, Palgrave: New York. Read More