Financial Investment Oppotunities Assignment 2

CONTENTS TASK 1: UNDERSTAND INVESTORS’ NEEDS 3.1 Identify the investment needs for each investor There are 4 main types of investors’ needs namely: Conservative investors’ needs Low r

Assignment Received By: Date:

BANKING ACADEMY OF VIETNAM BTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

NAME OF STUDENT Nguyễn Thị Kiều Anh - Snow - F05A

REGISTRATION NO F05-014

UNIT TITLE Unit 39: Financial Investment Opportunities

ASSIGNMENT TITLE Investment Portfolio and Interpretation of Financial

Information

NAME OF ASSESSOR Joey Lai

SUBMISSION DEADLINE 20th December 2013

I, Nguyễn Thị Kiều Anh hereby confirm that this assignment is my own work and not copied or plagiarized from any source I have referenced the sources from which information is obtained by me for this assignment

_ 20 December 2013 _ Signature Date

FOR OFFICIAL USE

Unit Outcomes

Outcome Evidence for

the criteria Feedback

Assessor’s decision

Internal Verificati

on First

attem

pt

work

3.1

Design portfolios of investments for different individuals

3.2

Explain the functions of financial advisers and how to select one

3.3

Explain investors’ rights and the protection available to them

4.1

Calculate stock exchange ratios and be able to explain what they mean

4.2

Describe and evaluate collective investments, e.g

Investment and unit trusts OEICs and bonds

4.3

Outcome Evidence for

the criteria Feedback

Assessor’s decision

Internal Verificati

on First

attem

pt

work

Assignment

( ) Well-structured; Reference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

A REPORT FOR SENIOR PERSONAL FINANCIAL CONSULTANT

Prepared for:

Lecturer, Mrs Joey Lai Financial Investment Opportunities Banking Academy, Hanoi BTEC HND in Business (Finance)

Prepared by:

Nguyễn Thị Kiều Anh - Snow - F05A Registration No: F05-014

No of words: 3300 Submission date: 20th December, 2013

TABLE OF CONTENTS

INTRODUCTION 6

CONTENTS 7

TASK 1: UNDERSTAND INVESTORS’ NEEDS 7

3.1 Identify the investment needs for each investor 7

3.2 Design portfolio of investments of different individuals 9

3.3 Explain the functions of financial advisers and how to select one 13

3.3.1 The function of financial advisers 13

3.3.2 The way to choose financial adviser 13

3.4 Explain investors’ rights and the protection available to them 14

3.4.1 Investors’ rights 14

3.4.2 Investors’ protection 15

TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE RANGE OF INVESTMENT AVAILABLE 16

4.1 Explain the information in the financial pages of The Financial Times 16

4.2 Calculate stock exchange ratios and be able to explain what they mean 17

4.2.1 Earnings per share (EPS) 17

4.2.2 P/E ratio 18

4.2.3 Dividend yield 18

4.2.4 Dividend cover 19

4.3 Describe and evaluate any one collective investment (investment trust, unit trust, mutual funds, OEICs) on the London Stock Exchange (LSE) 19

4.3.1 General description on collective investment 19

4.3.2 Evaluate investment trust on the London Stock Exchange (LSE) 20

CONCLUSION 22

REFERENCES 23

INTRODUCTION

In this report, I play role as the financial consultant in Citizens Investment Ltd My responsibility is base on the information about my clients to provide for them with personalized guidance to support all of their financial needs Besides, I also calculated the stock market ratios of BIX Company in order to recommend the clients whether should in that company or not I write this report based on information in the Investing course book and some reference books, many sources from internet, newspaper In addition, many slides which were continuously updated every week by lecturer Joey also help me collect information, theory in order to support in giving the advices for clients in specific financial situation

CONTENTS TASK 1: UNDERSTAND INVESTORS’ NEEDS

3.1 Identify the investment needs for each investor

There are 4 main types of investors’ needs namely:

Conservative

investors’ needs

Low risk tolerance investors Focused on the security of investment,

likely to give up higher amount of return over the long-term for the comfort of low volatility

Retirement

investors’ needs

Low to medium risk tolerance investors Focused on generating

wealth over the medium to long term while maintaining some fluctuations of return in the short-term

Balanced

investors’ needs

Medium to high risk tolerance investors Focused on producing

returns which are well ahead of inflation over the long term

Growth investors’

needs

High risk tolerance investor Focused on producing returns which are

significantly ahead of inflation over the long-term

Table 1: Types of investors’ need (Sunsuper, 2012) The need of Peter, Michael and Sandy is identified based on analyzing their risk tolerance, financial position and investment horizon as follows:

 Peter belongs to moderate risk tolerance

Financial

position

- Planning for retirement soon and has less than £10,000 saved

He is near to retirement; however he has not started saving for retirement

so saving money is small (less than £10,000)

 Peter has weak financial position

Investment

horizon

Saving for retirement soon (in less than 3 years)

 Peter’s investment is medium term horizon

 Investor’s needs: Needs for retirement

Table 2: Peter’s need

 Michael belongs to aggressive risk tolerance

Financial

position

- Has more than £25,000 to invest

 Michael has strong financial position

Investment

horizon

Plans to use the money down the road but still have more than 5 years to

go and looking for direction

 Michael’s investment is long term horizon

 Investor’s needs: Needs for growth

Table 3: Michael’s need

- Income: Does not have income yet

- Experience: Does not have (has not yet started any types of savings plan) Sandy is young students She still does not have income yet however she can borrow money from parents, friends and banks to invest She does not have experience in investment but she has high education and can hire advisors for giving investment advices

 She belongs to moderately aggressive risk tolerance

Pay for college (in 3 - 5 years)

 Sandy’s investment is long term horizon

 Investor’s needs: Needs for balanced

Table 4: Sandy’s need

3.2 Design portfolio of investments of different individuals

A portfolio is a combination of different investment assets mixed and matched for the purpose of achieving investor’s goals (investopedia, n.d.) Based on analysing the needs of 3 investors: Peter, Michael and Sandy in first part of report, the researcher can design an investment strategy by using asset allocation In order to accurately assess the portfolio for different investors, this report will compare two pie chart of investment portfolio which is designed based on two different software of reliable website, that are cgi.money.com and money-zine.com

 Investment portfolio for Peter

Peter belongs to moderate investor who doesn’t accept high risk but accept some risk to get good return to save for retirement

(cgi.money, n.d.)

(money-zine, n.d.) The portion for bonds, large-cap stocks,

foreign stocks and small-cap stocks are 70%,

15%, 10%, and 5% respectively Portfolio

shows that bonds is good choices for Peter

because bond is low risk financial instrument

and can generate steady growth interest as

well as can be flexible in time of investment

The figure shows that he should spend 48%

in bonds, 32% in cash and 20% in stocks It means that besides bonds, Peter should invest more on cash because cash investment is considered as ideal for increasing savings with low risk which make sure a certain safety for retirement saving

Calculation risk and return of investment

Assume have the returns on assets as follows

Assume have the returns on assets as follows

5.608 × 10 -4

 SD (R) = (5.608 × 10-4

)0.5 = 0.0236 = 2.36%

 Result above shows that Peter should choose the investment portfolio 1 which reduces 0.09% risk but still brings return higher 1.18% than investment portfolio 2

 Investment portfolio for Michael

Michael is aggressive investor who doesn’t concern about market fluctuation, willing to accept high risk for receiving high return, high growth in the future

(cgi.money, n.d.)

(money-zine, n.d.) Michael is recommended that he should invest

most of the assets on stocks with large-cap

stocks (30%), foreign stocks and small-cap

The second recommendation shows that he should spend the most (60%) for stocks which are considered as good choices for generating

stocks accounted for the same portion (20%)

which bring high interest but also go with high

risk Although Michael accepts high risk to get

maximum interest, he still should continue

investing small part of his assets (30%) in bonds

for safety in investment

wealth due to high risk with high rate of return The other safer investments are spending on 24% in bonds and 16% in cash which will help Michael recover the loss from investing more in stocks in the case of stocks investment is unsuccessful

Calculation risk and return of investment

Assume have the returns on assets as follows

Assume have the returns on assets as follows

7.644 × 10 -4

 SD (R) = (7.644 × 10-4

)0.5 = 0.0276 = 2.76%

 In conclusion, both figures also recommended for Michael should invest the most on stocks, but the first recommendation is more suitable than second one because with aggressive investors such as Michael, investing in cash isn’t suitable for get profit over the long-term Moreover, holding a portfolio of several stocks instead of holding stocks in isolation will help Michael reduce 0.47% risk while still get return higher 0.98%

 Investment portfolio for Sandy

Sandy is moderately aggressive investors who willing to accept medium to high risk for receiving high return, high growth in the future

Recommended portfolio 1 Recommended portfolio 2

The first recommendation for Sandy is spending

the most of her assets on investing in stocks with

large-cap stocks accounted for 30%, foreign

stocks (15%) and 10% for small-cap stocks

However, still invest large part in bonds (45%)

which brings steady growth interest, flexible in

investment This prefer to her characteristics of

moderately aggressive risk tolerance

The portion for bonds, stocks, cash are 40%, 40%, and 20% respectively Portfolio shows that investing more on stocks is good choices for purposes generating wealth to support for college expenses of Sandy However, bonds and cash still accounted 60% of investment for reducing the loss from investment because Sandy only is medium to high risk takers

Calculation risk and return of investment

Assume have the returns on assets as follows

Assume have the returns on assets as follows

6.3232 × 10 -4

 SD (R) = (6.3232 × 10-4

)0.5 = 0.0251 = 2.51%

 From the analysis above, it is easy to recognize that 2 recommended portfolios are also reasonable for Sandy However, Sandy should choose the investment portfolio 1 which will bring return higher 1.22% with risk lower 0.06% than investment portfolio 2

3.3 Explain the functions of financial advisers and how to select one

3.3.1 The function of financial advisers

A financial advisor (or adviser) is a trained specialist who helps people with their investments and financial planning (wisegeek, 2013) Financial advisors provide clients with advice on financial matters, making recommendations on ways to best utilise investors’ money Working as financial advisors, they must research the marketplace and advise clients on products and services available as well as ensure that investors understand those that best meet their needs Before giving any suggestion for clients, financial advisors must accumulate customers’ characteristics, financial position and customer needs to give the advice based on this data and they also must have specialty skills, and follow the regulations

of financial industry as well (prospects, 2013)

3.3.2 The way to choose financial adviser

Firstly, clients should identify types of financial advisor Financial advisors are divided into

three types:

- Tied advisers: working for one organization, such as bank, building society or insurance

company, and selling only their products

- Multi-tied advisers: selling several companies’ products

- Independent financial advisers (IFAs): advising on any company’s products and, by

law, providing clients with the most suitable advice (Arnold, 2010)

Peter’s need for retirement  He only need choose products from one specific provider which help him receive steady interest for saving for retirement soon

financial advisers

Michael’s need for growth  IFAs could help him widen products chosen from the whole of the market for finding new investment opportunities for generating more wealth in the future

Sandy Multi-tied advisers

Sandy’s need for balanced  Sandy only need generate wealth with products from several providers, no need expand whole of the market like Michael

Table 5: Identify suitable types of advisors for different investors

After identify types of financial advisor which suitable the most for themselves, investors

should focus on legal of a financial advisor All financial advisors must register with

Financial Service Authority (FSA) so it is easy for investors to ensure the qualification of financial advisors by entering into homepage of FSA

Thirdly, in order to choose good financial advisors, investors needs to consider on many aspects, namely

- Advisors are required to be registered with Security and Exchange Commission

License (SEC)  Ensure for investors due to financial advisor owed important liability

in their financial

- Look for advisors with experience  Ensure advisors’ ability to deal and handle

different situation

- Look for advisors with professional designations (Chartered Financial Analyst - CFA,

Certified Investment Management Analyst - CIMA )  Ensure advisors is an expert in the field that they are trained

- Typical professional investment advice fees  Ensure that investors can afford fee for

services

- Check the track record and reputation of advisor  Give confident for investors about

advisors’ ability

- Expect lots of questions from good advisor to assess clients’ investing expertise 

Good advisors always consider the big picture of clients’ financial situation before advising on products or recommending specific actions (Beyers, 2012)

In conclusion, based on above process, Peter, Michael and Sandy could make sure that their financial advisor is good for them to reach success in investment

3.4 Explain investors’ rights and the protection available to them

3.4.1 Investors’ rights

There are six common rights of investors, including:

Voting Power

Investors have power in electing directors, which takes place at the company’s meeting annually and voting for proposals for fundamental changes affecting the company such as liquidation or mergers

business thrives

Transfer ownership Investors are allowed to trade their stock on an exchange that is they

can exercise the right to transfer ownership