| What
is Financial Planning?
Good financial planning look into five areas of financial
management. They are:
-
Insurance Planning
-
Tax Planning
- Retirement
Planning
- Estate
Planning
-
Investment Planning
There
are some basic concepts to grasp before taking the leap in
financial planning. You need to understand the impact of inflation,
concepts of diversification and dollar cost averaging.
What
is the Impact of Inflation?
Assume you have RM10,000 today. Below is a chart which shows
you what happens to your RM10,000 given the varying rate of
inflation from 2-10%.
| Inflation
Rate(%) |
10
years |
15
years |
20
years |
2 |
8,203 |
7,430 |
6,370 |
4 |
6,755 |
5,552 |
4,563 |
6 |
5,583 |
4,172 |
3,118 |
8 |
4,631 |
3,152 |
2,145 |
10 |
3,855 |
2,394 |
1,486 |
Therefore,
if you don’t grow your savings through carefully chosen
investments, your RM10,000 will be eaten away by inflation
to RM4,563 after 20 years at 4% inflation rate.
Diversification
 |
There
are different investment choices available to you such
as shares, property, bonds or just keeping cash as fixed
deposits in the banks. Diversification means not putting
all your eggs in one basket but spreading them over different
classes of assets. However, diversification would not
be necessary if you could pick which asset class was going
to perform the best in any period and change your portfolio
accordingly. |
Remember
that the possibility of higher returns is always coupled with
the possibility of higher risks.
|
