Financial Planning 2e

<p>Preface xiv</p>
<p>Acknowledgements xvi</p>
<p>1 Personal financial planning 1</p>
<p>Introduction 3</p>
<p>What is personal fi nancial planning? 3</p>
<p>Why is personal fi nancial planning important? 4<br /> <br /> </p>
<p>The role of the fi nancial counsellor 12</p>
<p>The National Financial Literacy Strategy 12</p>
<p>Understanding risk 13</p>
<p>Features of the economic environment 16</p>
<p>The global fi nancial crisis and its impact on Australia 22<br /> <br /> The evolution of the fi nancial planning environment 23</p>
<p>The regulatory framework that applies to fi nancial planning 24<br /> <br /> What investors and fi nancial planners can learn from history 36</p>
<p>Appendix: The Financial Planning Association of Australia (FPA) 44<br /> <br /> 2 Financial planning skills 47<br /> <br /> Introduction 48</p>
<p>Preparing personal financial statements 49</p>
<p>Financial mathematical skills applied in financial planning 56</p>
<p>Compound interest and the time value of money 57</p>
<p>Nominal and effective interest rates 64</p>
<p>Credit cards 67</p>
<p>Net present value 72</p>
<p>Further applications of the time value of money concept 73</p>
<p>The internal rate of return 73</p>
<p>Fixed–interest securities 75</p>
<p>Effect of tax and infl ation on the rate of return 77</p>
<p>Appendix: Financial modelling 85</p>
<p>3 Taxation planning 89</p>
<p>Introduction 91</p>
<p>The Australian taxation system 91<br /> <br /> </p>
<p>The components of taxable income 94</p>
<p>Calculation of net tax payable for an individual resident taxpayer 100</p>
<p>Impact of tax on investment income 103<br /> <br /> </p>
<p>Taxation planning 113</p>
<p>Income splitting 114</p>
<p>Income versus capital growth 115</p>
<p>Tax structures 115</p>
<p>Negative gearing 120</p>
<p>Salary packaging and remuneration planning 120</p>
<p>Goods and services tax 127</p>
<p>4 Investment choices 141</p>
<p>Introduction 142</p>
<p>General attributes of investors 143</p>
<p>Broad investment classes 144</p>
<p>The risk and return relationship 147</p>
<p>The benefits of diversification 151</p>
<p>Recent performance of asset classes 160</p>
<p>General investment strategies 161</p>
<p>Investor behaviour 166</p>
<p>Investment scams 169</p>
<p>Information sources for investment choices 171</p>
<p>5 Direct investment fixed interest and shares 177</p>
<p>Introduction 178</p>
<p>Cash and fixed–interest securities 179</p>
<p>The nature of and participants in the fixed–interest market 180</p>
<p>Different forms of fixed–interest investments 182</p>
<p>The nature of and participants in the share market 190</p>
<p>The influences on share prices 195</p>
<p>The capital asset pricing model (CAPM) 202</p>
<p>Basic valuation models the Gordon dividend discount model and the price earnings ratio 204</p>
<p>Alternative direct investments 216</p>
<p>6 Direct investment property 223</p>
<p>Introduction 224</p>
<p>Qualities and characteristics of property 225</p>
<p>Different forms of property investment 226</p>
<p>Features and benefi ts of property funds 228</p>
<p>Taxation of property investments 233</p>
<p>Valuation of property investments 237</p>
<p>Advantages and disadvantages of home ownership 240</p>
<p>Financial implications of home ownership versus renting 244</p>
<p>Financing a house purchase 246</p>
<p>Taxation and housing 251<br /> <br /> </p>
<p>7 Managed funds 261</p>
<p>Introduction 263</p>
<p>Growth and characteristics of managed funds 263</p>
<p>The regulation and structure of managed funds in Australia 266</p>
<p>Investing into managed funds advantages, downsides and risks 270</p>
<p>Typical fee structures of MISs 275</p>
<p>Selecting a managed fund for investing 277</p>
<p>Management and investment styles 287</p>
<p>Taxation issues for investors in managed funds 291</p>
<p>Measuring returns and analysing the performance of managed funds 291</p>
<p>8 Leveraged investments 309</p>
<p>Introduction 310</p>
<p>Leveraged investing 311</p>
<p>Gearing 311</p>
<p>Income taxes and geared investments 313</p>
<p>Capital gains tax and geared investments 316</p>
<p>Mortgages 318</p>
<p>Margin lending 321</p>
<p>Benefits and risks of margin lending 325</p>
<p>Derivatives 329<br /> <br /> </p>
<p>9 Risk management and insurance 347</p>
<p>Introduction 348</p>
<p>Risk and risk management 349</p>
<p>Key concepts in insurance 350</p>
<p>Life, disability, trauma and health risks 357</p>
<p>House and contents risk management 380</p>
<p>10 Superannuation 395</p>
<p>Introduction 397</p>
<p>What is superannuation? 397</p>
<p>Why the need for superannuation? 398</p>
<p>The three pillars policy of superannuation 398</p>
<p>The legislative context for superannuation 399</p>
<p>Types of superannuation funds and who provides them 401<br /> <br /> 11 Retirement planning 441</p>
<p>Introduction 442</p>
<p>What is retirement planning? 443</p>
<p>Individuals needs in retirement 443</p>
<p>The three phases of retirement 444</p>
12 Self–managed superannuation funds 487
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<br /> Introduction 489
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<br /> The history and growth of small superannuation funds 489
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<br /> Setting up a self–managed superannuation fund 491
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13 Social security 533
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<br /> Introduction 535
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<br /> History of social security in Australia 535
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<br /> Rationale underlying the provision of social security 536
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<br /> Centrelink and the Department of Human Services (DHS) 536
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<br /> The range of social security benefits 537
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<br /> Pension and allowance benefit entitlements and eligibility rules 539
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14 Estate planning 573
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<br /> Introduction 575
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<br /> Obligations of the financial planner 575
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<br /> The role of a will within estate planning 576
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<br /> Drawing up a valid will 576
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<br /> Rights of beneficiaries 581
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<br /> Contesting a will 581
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<br /> Dying intestate 583
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<br /> Estate planning and taxes 585
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<br /> Capital gains tax 586
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<br /> The 3–year rule 587
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<br /> Stamp duty 588
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<br /> Estate planning and trusts 588
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15 Development of a statement of advice 613
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<br /> Introduction 615
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<br /> Disclosure requirements for the provision of a financial product 615
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<p>Appendix 15A: No advice statement 657</p>
<p>Appendix 15B: Confi dential client questionnaire 658</p>
<p>Appendix 15C: Risk tolerance classifi cations 669</p>
<p>Appendix 15D: Example Statement of Advice 671</p>
<p>Client information 671</p>
<p>Glossary 694</p>
<p>Index 703</p>