Diversification – the Manager & Senior Executive

In my previous post I looked at the personal cases of the Young Professional and that of the Rising Executive and how they can diversify their resources across different resource. In this post, I will consider the cases of the Manager and Senior Executive

Manager
Characteristics
Age: 40s
Annual Income: GHc 10,000 (Ghana) $70,000 (US)
Net Worth: GHc 55,000 (Ghana) $300,000 (US)
Risk tolerance: Low to Medium
Goals: Educate children and planning for retirement

Assert Allocation
Cash and cash equivalents………….……………………..10% to 15%
Fixed-income vehicles……………………………………….30% to 40%
Equities………………………………………………………..35% to 45%
Hard assets…………………………………………………...5% to 20%

Financial Profile
Your allocation is more conservative and liquid than that of the rising executive. Granted, you’re the same age. And your concerns are also very similar. But you don’t expect your future earnings to be nearly as great. And you would be much worse off if you lost part of your principal.
Your focus is also more on such critical goals as retirement and you children’s educations. You're less concerned with discretionary goals, such as a second home or a deluxe vacation. So you may need less of an inflation hedge. The reason: you expect inflation for basic goods and services to lag behind the inflation you anticipate in the cost of discretionary, or luxury, items

Investment Strategies
To increase liquidity and boost your income, you allocate more to fixed-income vehicles and less to hard assets. Reducing your investment in hard assets also reflects your lesser need for an inflation hedge

Senior Executive
Characteristics
Age: 50s
Annual Income: GHc 30,000 (Ghana) $150,000 (US)
Net Worth: GHc 150,000 (Ghana) $1 million (US)
Risk tolerance: Low to Medium
Goals: Make gifts to children, grand children and charities; and plan for a comfortable retirement
Assert Allocation
Cash and cash equivalents………………………………….0% to 5%
Fixed-income vehicles……………………………………….30% to 40%
Equities………………………………………………………..35% to 45%
Hard assets…………………………………………………..15% to 30%

Financial Profile
Your cash flow is now quite healthy. Your earnings have increased considerably, and your expenses have decreased, since the children have all finished their costly colleague educations. Besides, you have now both just about everything you want and need.
But you do want to plan gifts for your children and grandchildren. And you’d like to make a generous bequest to you alma mater.
Most important: you need to feel secure that your retirement years will be comfortable.

Investment Strategies
Since you didn’t need much ready cash, you transfer some of your funds from cash equivalents to fixed-income instruments. You get a higher return from longer-term fixed-income instruments than from cash and cash equivalents. You still have a way to go until your retire, so you keep your inflation hedges – the hard assets – constant. Right now, it doesn’t bother you that these assets are illiquid and yield little.

In my next post, I will be considering the case of the Retiree

Subscribe to Financial Intelligence by Email



Email me with any queries or comments.

Diversification – Young Professional & Rising Executive

In my previous post I completed the two part topic of how to diversify your resources among various resources ( Part 1 and Part 2). In this post and the subsequent two. I will touch on how five different individuals can diversify their resources based on their personalities. Specifically I will consider the cases of the following:

• Young Professional
• Rising Executive
• Manager
• Senior Executive
• Retiree

In this post, I will touch on the cases of the Young Professional and that of the Rising Executive.

Young Professional
Characteristics
Age: 30s
Annual Income: GHc 7,200 (Ghana) $50,000 (US
Net Worth: GHc 7,200 (Ghana) $50,000 (US)
Risk tolerance: High
Goals: Upgrade residence and personal property and begin planning for children’s education

Assert Allocation
Cash and cash equivalents………………………….……..5% to 10%
Fixed-income vehicles………………………………….….20% to 30%
Equities……………………………………….………….…..40% to 50%
Hard assets……………………………………...…………...15% to 30%

Financial Profile
You’re feeling optimistic about your life and career prospects. And you have a high tolerance for risk. After all, you reason, you can replace any principal you may lose, because your earnings are bound to spiral upward.
And since you have plenty of time for your investments to pay off, you can ride our any fluctuations in value common to growth stocks.
Moreover, you have little need for income other than your earnings, since your salary amply covers your living expenses.

You do, however want to protect your self against inflation over the long haul. So you invest in vehicles with a solid performance record over time
And you plan to make a down payment on a large house in the near future. So you want to keep a good portion of your holdings liquid.

Investment Strategies
Your portfolio is tilted quite heavily toward common stocks and real estates. The reason: although they fluctuate considerably in value, common stocks are historically, impressive performers over the long term. And they are very liquid.
Meanwhile, your hard assets – specifically your real-estate holdings – are an excellent hedge against inflation.

Rising Executive
Characteristics
Age: 40s
Annual Income: GHc 15,000 (Ghana) $100,000 (US)
Net Worth: GHc 75,000 (Ghana) $500,000 (US)
Risk tolerance: Medium to High
Goals: Educate children, buy a second home, begin planning for retirement and travel

Assert Allocation
Cash and cash equivalents………………………..………..5% to 10%
Fixed-income vehicles…………………………….………..25% to 35%
Equities…………………….………………………………....35% to 45%
Hard assets………………..……………………………….....15% to 30%
Compared with the young professional, the fixed income portion of your portfolio increases slightly while the percentage of common stocks decreases.

Financial Profile
You still have a long time for investment to pay off, but since you are beginning to consider retirement, you take a slightly more conservative posture than you did when you were younger. You still may replace any principal you lose with future earnings, but your time frame is shorter.
You are also less confident of you ability to slash money away, since your expenses are now higher than they were.

You have slightly less need for protection against inflation, because your investment planning period is shorter. But you may need additional income because of high living expenses.
And you still need to keep some holdings liquid. You want money for a sailboat and cash for a down payment on a second home.

Investment Strategies
By allocating less of your portfolio to common stocks and more to fixed – income vehicles, you reduce your overall risk and gain current income. Because you want ready access to your resources, you change the mix of your hard assets from natural resources, say to real estates.

In my next posts I will be considering the cases of the Manager ,the Senior Executive and the Retiree

Subscribe to Financial Intelligence by Email



Email me with any queries or comments.