Name of Student
Name of Student
Financial analysis report
Mark Lewis has decided to invest his money but he needs help from us. With the information which he has provided we will help him make the best decision and make best of his money in placing it in the right place. Mark Lewis provided the following information to us:
He is 32 years old single male working in an advertising firm. He graduated 7 years ago before joining the firm where he currently works. He likes investing in the stock markets without considering whether they are productive or not. He earns £34,000 per year and a bonus of £1,900 yearly. He does not like saving because he feels that this is an area where much attention is required. The following shows how Lewis spends his money:
Food- £250 per month
Clothes- £110 per month
Miscellaneous- £104 per month
Car loan repayment- £250 per month
Rent and council tax- £900 per month
Travelling, motoring expenses- £240 per month
Socializing- £200 per month
Gifts and birthdays- £42 per month
Holidays- £150 per month
Utilities- £80 per month
Gym membership- £62 per month
Loan interest- £80 per month
Lewis spends a grand total of £2498 per month.
Lewis needs to save towards a deposit of a property which he wants to but in the future, he also wishes to join a pension scheme but he is in doubts whether to join or not and since he likes travelling he would like to take a trip once a year. He needs £2000 for this trip in a year. He does not have any saving plan that will see him achieve these goals. Our client’s goal is move to big firm with the prospect of more specialist work and a higher salary than he currently earns. He sees this coming through in a span of 18 months. After having detailed discussions with our client we realized that have no plans for a family yet and he keeps it as a possibility. With the discussions the client decided that he would like to have a saving of £40,000 towards the property which he plans to take in the future. In order to achieve this goal of a property the client has decided and show s willingness of saving £4000 a year towards that, and save £1000 per year towards his travelling.
From the information provided by our client, we learnt that he has invested in shares in various firms as follows:
a. Shortly after graduating he purchased Gilts which he considered to a low risk investment as follows; treasury 8% 2021 (nominal value £2000)
b. Invested 200 shares in Fidelity China Special Situation and Fund after reading it in an article 2 years ago.
c. Also he has quoted shares as follows
150 shares in Imperial Tobacco Company.
200 shares in BP shares.
100 shares in Centrica.
Following the discussions that we had with the client we learnt that he has bought a range of shares and he acknowledged that he had no coherent plan when he was making these investments. He also seems to be having knowledge about the investments and he requested to be enlightened on ethical investments and social impact investments and whether they can suit him. He also seems to know the existence of active and passive investments but does not know what they are.
Ethical and social impact investments
Following the development of ethical investments by the American pioneers in the 1970s and 1980s they came up with a term which was to be used instead of the ethical investments. This term was Socially Responsible Investments in which the term socially was later left out due to the fact that it is linked to socialism which was viewed with disbelief by the Americans. The SRIs in Europe and America differs in many various ways. Firstly there is a difference in the culture of business in both continents in that the American government is less involved in the corporations than the European countries. Secondly there is a strong health care and pension scheme systems than in America where people have to look for themselves (Hancock, 2002). The ethical practices have changed over time in both continents which focused on pension schemes, local community development, employee rights and health care (Schwartz, 2003) thus the word Socially Responsible Investments since all the aspects involved had a social value imbedded in them in America. These aspects did not receive much attention in Europe since most of them were integrated through social democratic governments in the society.
Ethical investing depends on one’s views; some may choose to ignore to invest in certain industries or choose to invest in industries that meet his/her ethical guidelines. Ethical investments is used interchangeably with social investments; social investment funds have overarching set of rules that are used in selecting the portfolio whereas ethical investments bring more personalized results. An ethical investment gives one the power to invest in companies that match their views, whether based on political, environmental or religious perspectives. To invest ethically one should write down areas which he should avoid and those that he/she wants to invest in.
On the other hand a social impact investment aims in generating specific beneficial effects socially or environmentally in addition to financial gain. A social impact investment is a subset of ethical investment but since ethical investments involves avoiding harm, social impact investments seek to make positive impact investment. A social impact investment involves different forms of capital and investment ways. Social impact investments are done through institutional investors where a range of social impact investment companies, investor networks and web-based investment platforms offers an i9ndividual with an opportunity to participate in social impact investments.
Active verses passive investments
Following our discussions with the client he showed having an idea of the existence of active and passive investments. Active investments involve buying and selling of stock by the investors where active investors purchase stocks and monitor them continuously in order to exploit profitable conditions whereas passive investments involve limited buying and selling of stock by investors. A passive investor buys stock with an intention of long-term appreciation. Unlike passive investments where the investors invests in stock only when they believe that it will appreciate in the long-term, active investment is highly involved since the active investors monitors the movement of the stock prices in the market many times in a day, thus they seek for short-term profits than the passive investors who seek for long-term profits.
A passive investment which is also known as buy-and-hold among the investors requires initial research, a patient investor and a well diversified portfolio. Unlike active investors who buy a security for short-term profits, passive investors rely on the belief that the investment is going to be profitable in the long-term.
Following the clients financial status and goals of buying a property in the future, joining a pension scheme and saving enough cash of £2000 per year for his travels, we de have decided to invest his first year’s savings of £4000 in stocks and mutual funds in the following rationale:
We saw it better for our client to invest a total of £4000 in both stocks and mutual funds in a year. We split the £4000 as follows £3000 in stocks and £1000 in mutual funds. Since we took our client to be young that is why we thought it will be good for him to invest £3000 mainly on stocks. This was also reached because he will have all the time to regain his financial position in case he does lose his money from his investments, even though we do not doubt our choices for him. Because he has a goal of buying a property in the future we chose to use £1000 of our client to invest in mutual funds that are registered retirement savings plan eligible. The reason we chose only £4000 per year for his investment is because we kept the option of him having a family open.
Also following the client being cautious to risks we decided to take £65,000 inherited money to invest in fixed income instruments and also in mutual funds. We came to the decision of investing his money in fixed income to be best for him since we felt that this is the best asset allocation for his money due to the low return on this money. And this allocation offers a high return than the saving account which he has taken. The fixed income investment provides a continuous income from the investment and remains fixed over time and offer a fixed interest. This investment also has a low risk which the client likes. Our client will not lose his shirts incase anything happens to his investments. In our first investment decision for our client, the consistency of the stocks that we chose is important for him. This is because he needs to invest in stocks that are not choppy; this is to ensure that the money of our client is not at risk.
We have chosen to invest Lewis’ savings of the first year of £4000 in stocks and mutual funds (£3000 and £1000 respectively). The rationale of our choice of stocks and mutual funds is as follows. We did not compare the rate of returns in selecting the mutual funds and in analyzing the stocks that we chose for our client we did not analyze the financial fundamentals of the companies that we chose. We chose to maintain the companies that he has already bought stocks but to increase the number of holdings in them. This is because he has not complained about them. Therefore, we saw it best for him to increase the holdings. This is how we chose to invest the money in the existing companies which he already has stocks in.
Price per share
Share to be bought
Imperial Tobacco Company
Following a close examination of the client’s details from the information he gave us I will strongly recommend for him the following:
c.i) Aviva’s personal pension plan for him since it allows only £150/month and a wide range of funds to invest in (Aviva, 2012)
c.ii) Due to his future plans of owning property I will recommend him to take a mortgage.
c.iii) Use the money that he inherited to set up an emergency fund. I recommend him to deposit the money in Barclay’s Cash saver account that is tax efficient.
c.iv) To have a long-term saving plan also in the Barclay’s cash saver account since it is easily accessible and charges a tax of 2.2% in a year.
c.v) In his income and expenditures I will recommend the following;
To pay off his debts
To cut off some expenditures like the gym membership and miscellaneous. This will give him a higher disposable income in each month (Butler, 2012).
c.vi) I will also recommend that he buys an income protection insurance policy. This will enable him to receive some claims from the company in case he gets ill and does not go for work. I will also recommend taking this policy from the Aviva (2012).
c.vii) Since he has shown interest in the stock market I recommend him to be a passive investor because of the long-term interests that comes with it.
Since the client inherited some money from his relative then it is important to ensure that his will is legal and agreed as to the amount of inheritance tax (UK government, 2012). If the client will take my recommendations he will then find it necessary to take a mortgage. He will also have to make a will so that he will decide how his assets will be distributed in case he dies and how who will inherit his amount of the life assurance policy (Butler, 2012). He can write the will himself or ask for a legal advice.
Aviva (2012) Income Protection [online] Available from: http://www.aviva.co.uk/income- protection/ [Accessed Dec, 2014].
Aviva (2012) Personal Pension [online] Available from: http://www.aviva.co.uk/personal-pension/ [Accessed Dec, 2014].
Aviva (2012) Stakeholder Pension [online] Available from: http://www.aviva.co.uk/stakeholder-pension/ [Accessed Dec, 2014].
Barclays (2012) Investment ISA (Stock and Shares ISA) [online] Available from: http://www.barclays.co.uk/BarclaysInvestorZone/InvestmentISAStocksandsharesISA/ P1242586422530 [Accessed Dec, 2014].
Barclays (2012) ISA Saver – Issue 2 [online] Available from: http://www.barclays.co.uk/Savings/ISAs/ISASaverndashIssue2/P1242606158666?scr eferrer=https%3A%2F%2Fwww.google.co.uk%2F&sclandingpage=Personal%3ASavin s%3AH1242557860616 [Accessed Dec, 2014].
Butler, J. (2012) The Financial Times guide to wealth management: how to plan, invest, and protect your financial assets. Hampshire: PEARSON EDUCATION LIMITED
UK government (2012) Making a will [online]. Available from: https://www.gov.uk/make-will/overview [Accessed Dec, 2014]
UK government. (2012) State Pension calculator [online]. Available from: https://www.gov.uk/calculate-state-pension/y/amount/male/1980-12-12/8/0/no [Accessed Dec, 2014]