Financial Planning: Wealth Creation and Lifestyle Strategies

This assignment presents a financial plan tailored to an individual's goals, encompassing wealth creation and lifestyle recommendations. The plan outlines strategies for three key objectives: funding a daughter's wedding, accumulating a house deposit for children, and planning for a holiday. For the wedding, the plan suggests a cash fund investment, detailing the monthly deposit, interest rate, and projected returns. The house deposit strategy involves investing in an Australian share fund, considering the potential high yields and associated risks. Finally, the holiday plan recommends investing in a defensive fund to achieve the savings target while mitigating risk. Each strategy includes advantages, disadvantages, and alternative investment options, along with future value calculations to support the recommendations.

Wealth creation & lifestyle recommendations – outside superannuation
1. Goal [daughter’s wedding]
Recommended strategy
 For daughter’s wedding there is a requirement of fund to the tune of $10,000
 Deposit $770 per month in 2.8% cash fund for the next 12 months till the date of
wedding
 It will yield a total of $9,360
 Use the savings of the month of wedding to accumulate a total of $10,000
 Total accumulated balance would be $9,360 plus $770 equals to $10,130 (Please
see Table 1)
Advantages of strategy [reasons why]
 As the wedding is in the next year, he has to pay it off from the liquid savings
available to him.
 Cash fund is a means of liquid savings
 It can easily be achievable with a minimal savings of $770 per month.
 As the proposed cash fund investment is a managed fund, it is less risky
Disadvantages of strategy
 It is assumed that the cash fund will generate a 2.8% interest before tax, it may be
lesser after tax and other expenses of cash management.
Alternatives considered
 Alternatively it can be invested in the savings account at 2.5%
2. Goal [house deposit for children]
Recommended strategy
 A total of $60,000 is needed for making the house deposit for his daughter and son,
$30,000 for each.
 As he is planning to make the deposit in next 3 to 4 years, he needs to utilise the
balance from his savings investment. And cash balance
 To accumulate desired amount of fund for making house deposits, invest $770 per
month in Australian share fund which will yield a high return in short term period.
 It will yield a total of $32,172, and he need to utilise some amount from his savings of
$37,000 (Please see Table 2)
Advantages of strategy [reasons why]
 High yield in short period of time, and as the deposits are in Australian share funds it
is subject to certain risk but assumable.
 Hassel free withdrawal.
Disadvantages of strategy
 Any investment in share fund is risky as it depends on share market performance.
 Investments in share fund are subject to tax and many other transaction fees, which
may reduce the total return to certain extent.
Alternatives considered
 Alternatively it could be deposited in government bond or fixed interest funds, which
will yield a lower return and lengthy process of withdrawal. As he want to keep a
minimum balance of $10,000 in the savings it will meet the purpose in this plan only.
3. Goal [holiday]

Recommended strategy
 He needs to accumulate $25,000 at the age of 60 years for the holiday plan.
 After the utilising the fund from the investment in Australian share fund, and paying
off for house deposits, he will be of 56 years age.
 He needs to invest $770 for next 4 years to achieve the goal in a defensive fund at
an interest rate of 3.2%
 It will generate a total of $39,374 at the age of 60 years (Please see Table 3)
Advantages of strategy [reasons why]
 He is a risk adverse person and hence, defensive funds will be better for him.
 As it can be observed that, with the deposit in defensive fund with a lower interest his
objective of accumulating $25,000 can be achieved, it would be better to go for the
option.
 The investment is more secured than other investment options, as 90% are
defensive assets and only 10% are growth assets are there in the investment.
Disadvantages of strategy
 As it is defensive fund and assumes less risk, it yields lower return as compared to
other deposits
 Defensive funds generate less interest earnings and capital appreciation. The capital
appreciation is very less as only 10 percent of the fund is on growth assets.
Alternatives considered
 Alternatively it could have been deposited in growth fund or high growth fund, which
would have generated a high return but it would be more risky.

Appendix 1 - Future value (FV) calculations
Daughter's Wedding
Deposit in Cash fund for next 12 months
Deposit per month $ 770
Interest rate 2.80%
Year 1
FV $ 9,360
Table 1
Deposit for house
Investment in Australian Share fund for 3 years
Deposit per month $ 770
Interest rate 10.00%
Year 3
FV $ 32,172
Table 2
Holiday plan
Investment in Defensive Fund for 4 Years
Deposit per month $ 770
Interest rate 3.20%
Year 4
FV $ 39,374
Table 3