HSBC Living Finance - Young Financial Planner Competition Learning and Development, Asia-Pacific.

HSBC Living Finance - Young Financial Planner Competition

Learning and Development, Asia-Pacific



What is Financial Planning?

Financial Planning is the process of setting, planning, achieving and reviewing your life goals in different stages through the proper management of your finances.

Source from IFPHK



What is Financial Planning? (cont’d)

• It also helps people to accumulate assets, to grow assets and ensure their assets are under protection

• A comprehensive Financial Planning helps people to prepare for the unexpected life events e.g. illness or disability



Scope of Services

• The comprehensive approach to financial planning provides for an initial analysis of the client’s total financial well-being – both now and into the future.



Scope of Services

• The comprehensive financial planning approach addresses the areas of investment, estate planning, insurance risk management, income and expenditure, wealth accumulation and taxation.



The Work of Financial Planner • Financial Planners help people

achieve their financial goals, whether it be buying a home, saving for their children’s education, investing their hard earned money, managing debt, or planning for retirement.



The Work of Financial Planner

Financial Planners help clients to:• Make informed decisions about their money

and how it can be used to best advantage• Develop a sound financial plan covering all

aspects of their financial well-being• Choose products that meet their specific

needs• Review their financial situation on a regular

basis and revise their financial plans as necessary



Purpose for conducting Financial Planning

• Fulfilling Dreams – plan to make dreams come true: – For example: Purchasing property,

cars, reducing liability, travel etc– When and how to make it becomes

true:“Plan early, enjoy life later”



Benefits of conducting Financial Planning

• Prepare for the unexpected• Fulfill the goals in different

stages• Improve financial situation



Financial Needs in Life-stage

As Student

Life Cycle

At birth

Working

Marriage/Mortgage

Retirement

Wealth Accumulatio

n & Parenthood



Life Goals

• Include buying a home, getting married, raising children and planning for their education, insuring yourself and your family, setting aside money for retirement and investing it, estate and tax planning, etc

• Are not limited to personal matters; they may involve starting a business or joining a partnership, etc



Time Horizon of Financial Planning

1. Short-term Less than 5 years

E.g. house deposit, buy a car, plan for holiday, reduce personal / family expense by 10%

2. Medium-term 5 – 10 years

E.g. mortgage reduction, savings for children’s education

3. Long-term Over 10 years

E.g. retirement, financial independence, estate planning



Key Scopes of Financial Planning

Cash & Credit Management

Insurance Planning

Investment Planning



Most common ways of using credit:

Loans and Credit Cards



Types of Loan

Clean Loan:

• Personal Installment Loan

• Personal Overdraft

Secured Loan:

• Home Mortgage Loan

• Car Loan

• Secured Overdraft



What is a loan?

Borrower Lender

Loan principal

Repayments + interest



Credit card

Cardholder

Card issuer

Monthly payments

Credit Card with a revolving credit limit




oKeep planning your Spending vs. IncomeoUnderstand Needs & Wants before SpendingoProper use of Credit Card or Loan Product



Insurance Planning



Insurance Planning

• Purpose– Ensure the existing standard of living if

income discontinues– Protect the things you own– Achieving your financial goals even in the

worse scenario– Cover you liability



Types of Insurance • Life Insurance

– Death & Disability; personal & family income• Assets

– Your property, household contents, personal belongings.• Liability

– Any harm, loss, or damage to other people or their property that you are legally liable for their losses.

• Accident– Medical & hospital expenses and loss of earnings resulted from accidental injury.

• Medical and Hospital Insurance– Medical expenses and hospital expenses in the event of hospitalization or

prolonged critical sickness– Out-patient expenses



Different Types of Life Insurance

• Term Life Insurance– No saving element

• Traditional Life insurance– Guarantee Cash Value + Non guarantee dividend

• Investment Link Life Insurance– Cash Value depends on investment performance



•Life insurance is not a luxury.•It’s as basic as food, clothing or

shelter…



“I don’t need insurance!”

But your family needs it.



Forms of General Insurance (covering assets, liability, and accident)

• Home

• Travel

• Motor Vehicle

• Accident

• Domestic Helper



Forms of Medical and Hospital Insurance

• Hospital Expenses

• Hospital Cash

• Out-patient



Investment Planning



Important Concepts

• Inflation (通貨膨脹 )

1985

$0.1-$0.5

2005

$2-3

1995

$1-$1.5



Power of Compounding: HK$5,000 / Monthstarting at age 35 with 0%, 5%, 10%, 15% return p.a.

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

0% 5% 10% 15%HK$1.8M HK$4M HK$11M HK$30M



Cost of Delay: HK$5,000 / MonthStarting at age 35, 45, vs 55 at 5% return p.a.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

Start at 35 Start at 45 Start at 55HK$4M HK$2M HK$900K



Important Concepts

• Risk & Return (投資風險及回報 ) – What is your Risk Tolerance Level (風險承受程度 )

Will you sleep well?



Important Concepts

• Factors in accessing Risk Tolerance level– Age– Education background– Personal characters– Financial situation– Investment objectives– Investment experiences



High Risk = High Return ????



HSI Performance (1987-2006)

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006



HSI 1-Year Return Distribution (1987-2006)

0%

5%

10%

15%

20%

25%

• Mean Return: 17.5%• Probability of positive

Return: 65%



U.S. equity : MSCI U.S. Index

Europe equity : MSCI Europe Index

Japan equity : MSCI Japan Index

Emerging market equity : MSCI Emerging Market Index

Hong Kong equity : MSCI Hong Kong Index

World Gov't Bond : Citigroup World Govt Bond Index

Global High Yield Bond : Lehman Brother Gbl High Yield Index

Global Emerging Market Bond : JP Morgan Gbl EMBI Index

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Japan

43%

Emg Mkt

40.4%

Emg Mkt

65%

Govt Bond

12%

Emg Mkt

59.9%

HK

32.1%

HK

116.8%

Japan

21.8%

U.S.

38.2%

EM Bond

37.8%

U.S.

34.1%

U.S.

30.7%

Emg Mkt

66.2%

EM Bond

12.7%

EM Bond

9.7%

Govt Bond

17.2%

Emg Mkt

56.3%

Emg Mkt

25.9%

Emg Mkt

34.5%

Europe

34.3%

Govt

Bond

18.4%

Japan

35.2%

U.S.

31.2%

HK

9.2%

HK

49.6%

High Yld

18%

Emg Mkt

74.9%

Europe

2.66%

EM Bond

20.5%

HK

33.1%

Europe

24.2%

Europe

28.9%

Japan

63.1%

Govt Bond

1.8%

High Yld

2.3%

EM Bond

13.7%

Europe

39.2%

HK

25.1%

Japan

25.7%

Emg Mkt

32.6%

Europe

4.1%

HK

27.9%

Europe

29%

U.S.

-2.1%

High Yld

49.2%

Emg Mkt

11.4%

Europe

29.8%

U.S.

2%

HK

22.5%

U.S.

24.1%

High Yld

12.8%

Govt Bond

14.5%

HK

59.1%

High Yld

1.1%

Govt Bond

-1.4%

High Yld

4.1%

HK

38.1%

Europe

21.4%

EM Bond

10.3%

HK

30.3%

U.S.

3.9%

Europe

16.4%

HK

8.5%

Europe

-3.4%

U.S.

31.3%

U.S.

7.4%

Japan

25.7%

Govt Bond

1.8%

Europe

22.1%

Europe

21.6%

EM Bond

10.8%

Japan

5.1%

U.S.

22.4%

Europe

-8.1%

Emg Mkt

-2.4%

Emg Mkt

-6%

Japan

36%

Japan

16.3%

Europe

9.9%

U.S.

15.3%

HK

-4%

U.S.

15.9%

Govt Bond

4.3%

High Yld

-8.3%

Govt Bond

15.8%

Govt Bond

6.4%

High Yld

24.7%

High Yld

-6.2%

High Yld

20.5%

High Yld

17.8%

Govt Bond

1.2%

HK

-2.9%

EM Bond

19.6%

U.S.

-12.5%

U.S.

-12%

Japan

-9.8%

High Yld

32.4%

High Yld

13.2%

HK

8.3%

High Yld

13.7%

Govt Bond

4.4%

Japan

1.8%

Emg Mkt

-10.6%

Europe

13.7%

Europe

-4.3%

Govt Bond

14.1%

Emg Mkt

-7.3%

Govt Bond

18.3%

Emg Mkt

6.0%

Emg Mkt

-11.6%

High Yld

-4.8%

Europe

16.2%

HK

-14.8%

HK

-18.6%

HK

-17.8%

U.S.

29.1%

EM Bond

11.6%

U.S.

5.7%

EM Bond

9.8%

Japan

-36%

Japan

9.1%

Japan

-21.4%

U.S.

10%

EM Bond

-19.3%

Japan

0.42%

Govt Bond

1.7%

HK

-23.3%

EM Bond

-8.1%

High Yld

10.4%

Japan

-28.3%

Europe

-19.6%

Europe

-18.1%

EM Bond

22.2%

U.S.

10.7%

High Yld

3.6%

Japan

6.4%

HK

-28.9%

Emg Mkt

-5.2%

Japan

-15%

Japan

-24%

Emg Mkt

-25.3%

Govt Bond

-1.5%

Emg Mkt

-30.6%

Japan

-29.5%

U.S.

-22.7%

Govt Bond

12.4%

Govt Bond

8.7%

Govt Bond

-6.5%

Govt Bond

4.6%

Data Source: Ibbotson

Benefit of Diversification



Efficient Frontier and Optimisation

Standard Deviation (Risk)

Expected Return

0.0 40.02.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 22.0 24.0 26.0 28.0 30.0 32.0 34.0 36.0 38.04.0

19.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

Citi WGBI USD

Lehman Brothers Global High Yield

JP Morgan EMBI Global Diversified (%Total Return)

MSCI U.S. TR

MSCI Europe TR

MSCI Japan TR USD

MSCI Emerging Mkts TR

MSCI Hong Kong TR USD

Source: Ibbotson



Optimal Asset Allocation

Asset Class Stable Balanced Growth Aggressive Growth

World Investment Grade Bond

80 22

Global High Yield Bond

20 17 13

Emerging Markets Bond

10 10

US Equity 16 17 30

European Equity 11 14 10

Emerging Markets Equity

15 24 30

HK Equity 9 22 30



Historical Performance of Optimised Portfolio

22

33

47

60

812 15 16

-5 -7-12

-18-30

-20

-10

0

10

20

30

40

50

60

70

Best Year

Mean

Worst Year

Stable Balanced Growth Aggressive Growth

Standard Deviation 6% 11% 17% 21%

Source: Ibbotson



High Risk ≠ High Return



Important Concepts

• Time Horizon (投資期 )



Index

Time

Important Concepts




Important Concepts

• The longer the time horizon, the more options an investor will have to reduce or manage risk




To keep your learning continue, please visit our HSBC Living Finance Website 滙豐理財小百科

www.hsbc.com.hk/livingfinancewww.hsbc.com.hk/livingfinance

HSBC Living Finance - Young Financial Planner Competition Learning and Development, Asia-Pacific.

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