Fundamental of Investing Financial Health

Question: Discuss about theFundamental of Investingfor Financial Health. Answer: Introduction Investment is the process of investing money in the financial instruments so that at a certain period the investors can get their desired results. Various kinds of investment instruments or tools fetch different kinds of returns to the investors. Based on the requirement of the returns, the investors invest their money in the suitable investment tool (Elsas, Flannery and Garfinkel 2014). Hence, at the time of investment decision, the investors need to consider many important aspects of investment. This total process is called the investment decision (Xu 2015). The given case is about the process of investment decision of Mr. M. who is a family person aged around 40. Financial Health As per the provided case study, the investment decision is about Mr. M. Mr. M is aged around 40 years. The provided case study states that Mr. M is an employee of a multi-national corporation in United States where he is holding the position of one of the senior managers of the company. He is a married person. His daughter is going to have higher education in Australia for the next four years that will cost SGD 75,000 each year. His wife is currently working is a local logistic firm as an accountant. As per the case study, it can be seen that Mr. Ms job was made redundant due to the bad financial condition of the company. Mr. M sold all of his shares of his company and got SGD1.5 million as per the sale proceeds. He also got SGD 300,000 from his company as per the unemployment benefits. In addition, he has a saving of SGD 200,000. After taking into consideration all the above-discussed amounts, Mr. M has a fund of SGD 2 millions in his hand. As per the other information, Mr. M has en ough insurance for medical and long-term disability and premature death for his entire family. For the purpose of investment decision of Mr. M, it is needed to assess the current financial position of him. It is assumed, Mr. M will be able to find a well-paying job after his former job. Hence, it can be observed that the he will not have any problem in managing his daily financial obligations. One of his major long-term financial obligations is to arrange the fees for his daughters higher education. He wants to invest his money in such a way that he can meet any major future financial obligation. He has done enough insurance policies to secure the future of his familys health. On the other hand, he has his own house. From this statement, it can be understood that Mr. M does not want to take risk with his life as well as money. He does not need much liquidity as he can be able to find a good job. Hence, it can be said that the main objective of his investment is to provide the fees of higher education of his daughter. In addition, he wants to keep the whole amount of money for his family. These are the main investment objective of Mr. M. Analysis of the Proposals As per the provided case study, two investment proposals are there in the case study. Both the proposals are analyzed and evaluated below as per the investment requirement of Mr. M. Proposal 1 The first investment proposal has come from Ms. Angela, senior Marketing Director of Awesome Energy Private Limited (AEPL). As per their investment scheme, one can invest his money for a time of 3 month and the company is offering an interest rate of 3% on every three months. The company use to invest the money of the investors in the oil fields and gas reservations. This is a field where the investors will certainly get their desired returns, as there is a minimum amount of risk is involved. This particular investment proposal has many advantages over the disadvantages. The first advantage is that the investors can get the principle money along with interest at the end of every three months. Second, it is not mandatory to reinvest the money after each maturity. Second, there is minimum risk involve in this investment process as the money is invested in government sector. Last but not the list, the investors can visit the oil and gas site to see the progress of the project. There is not any currency risk in the total process. There is not any major risk involved in this investment process (Harris et al. 2016). Proposal 2 The second investment proposal came from Mr. Benjamin, the senior vice president of Evergrow Worldwide Bank Ltd (EWB). Mr. Benjamin suggested Mr. M to invest his total amount of money through a discretionary investment management account. Discretionary investment management refers to the investment process where a portfolio manager or a fund manager manages the fund of investors. As per this investment proposal, the money of Mr. M is to be invested in foreign currencies, local stocks, bonds, US, and EU foreign stocks. The weight will be 10%, 40%, 10% and 40%. However, this weight can be altered as per the requirement of Mr. M. In this proposal, there are major risks involved. All the components of this proposal except the bond are of subjected to high market risk. One cannot guarantee fixed amount of return in this investment proposal. On the other hand, the minimum amount that needs to be invested in this proposal is SGD 1 million (Lamminen et al. 2015). The following graph shows the risk and return factors in discretionary investment account: Figure 1: Risk and Return factors (Source: Downes and Goodman 2014) The following figure shows the risk and return hierarchy in portfolio investment Figure 2: Risk and Return Hierarchy (Source: Hull 2014) Recommendations The above discussion sheds light on the merits, demerits and risks involved in the mentioned investment proposal. As per the financial situation and requirement of Mr. M, the investment proposal from Ms. Angela is recommended for Mr. M. There are reasons behind this recommendation. First, if Mr. M invests his money for at least one year in the investment scheme of AEPL, the higher education fees of his daughter will be arranged with ease. By investing 2 million for one year, he will get SGD 60,000 after three months. In this way, he will get SGD 240,000 in one year. Mr. M will have a lot of money left in his hand even after paying the fees of his daughters education. With the extra money in hand, he can start his own business. One of the most important reasons for this recommendation is that Mr. M does not want to invest his money in banks, bonds, stocks, annuities and others as there is a lot of risk involved. Mr. M wants a guaranteed return at the end of certain period with his pri nciple money safe. These are the reasons for recommending this particular proposal to Mr. M. This particular investment proposal is recommended to Mr. M because there is almost zero risk in this process. At the end of every three months in a year, he is assured to get the interest amount along with the principle amount. On the other hand, he has no need to take any kind of additional actions to mitigate the risks involved in the investment process. Hence, it can be said that there is not much uncertainties over this particular investment process. This particular investment scheme is the trailer-made plan for Mr. M where he does not has to face any kinds of uncertainty over the payment of interests sand principle amount. References Downes, J. and Goodman, J., 2014.Dictionary of finance and investment terms. Barron's educational series. Elsas, R., Flannery, M.J. and Garfinkel, J.A., 2014. Financing major investments: information about capital structure decisions.Review of Finance,18(4), pp.1341-1386. Harris, E.P., Harris, E.P., Northcott, D., Northcott, D., Elmassri, M.M., Elmassri, M.M., Huikku, J. and Huikku, J., 2016. Theorising strategic investment decision-making using strong structuration theory.Accounting, Auditing Accountability Journal,29(7), pp.1177-1203. Hull, J.C., 2014.The evaluation of risk in business investment. Elsevier. Lamminen, J., Forsvik, H., Voipio, V. and Lehtonen, L., 2015. 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