Edgar and Jasmine are 54 and 49 respectively. They are both employed and have two teenage children who plan to attend college.
Edgar makes $100,000 a year
Jasmine makes $127,000 a year
Each are interested in income replacement if they become disabled, or die.
Since their house will be paid off in 20 years, Jasmine feels she only needs to have coverage until that time.
Edgar would like to have enough coverage on both of them to cover a funeral if necessary.
They would like to be able to pay for their childrens’ higher education.
They also want to make sure they are not a burden to their children should they need nursing home care.
They have two car loans totalling $35,000, and plan to continue to purchase new vehicles every three years (so they will continue to have vehicle loans, requiring full coverage on their cars).
They also have $25,000 in credit card debt that they are working hard to pay off.
They have health coverage through work, and both have the option to participate in 401K plans which average an 8% return.
Paul and Ann Smith are in their 20’s and have no children. Both are working full time.
Combined income of $100,000 a year.
They plan to have children in the future, but are thinking about 10 years down the road. They would like to fund part of their childrens’ higher education.
Paul would like to quit his job (he makes $35,000 of their income) to start his own consulting business.
They rent an apartment, and Ann has health insurance through work that can cover them both.
They like to drive new cars, so have vehicle loans of $40,000, at 2% interest (due to their very good credit).
Ann received an inheritance from her aunt when she was 19 years old of $100,000 which she promptly invested in a mutual fund earning 6% annually.
Ann plans to contribute 10% of her income to the 403B at her job.
Paul would like to open some type of when he leaves his job.
Edgar and Jasmines investment needs are centered on ensuring a
comfortable life in their old age. For instance, they are concerned about
income replacement in the event they become disabled, would not want to
burden their children with nursing home care, and Edgar would prefer
having funeral coverage for him and Jasmine if necessary. This shows that
Edgar and Jasmine are concerned about their old age being comfortable for
them and their children. Therefore, it can be deduced that their investment
needs are centered on securing their old age. Investing in one’s old age is an
important decision as it reduces the burden on families for catering to one’s
healthcare expenses (Mokoena et al., 2021). Since Edgar and Jasmine have
health coverage through work and their house will be paid off in 20 years,
they have nothing to worry about their health and housing needs. However,
they should clear the $25,000 credit card debt and car loans, and plan on how
to invest in covering the new cars they intend to buy every three years. On the
other hand, Paul and Ann Smith need to invest in their children’s higher
education, just like Edgar and Jasmine. Since they live in a rented apartment,
they need to invest in owning a home, unlike Edgar and Jasmine, whose
housing is already covered. Paul is concerned about owning a consultation
business and having a self-employed retirement plan, so he needs to invest in
income coverage. However, just like Edgar and jasmine, Paul and Ann do not
need to invest in health since Ann has work health insurance that can cover
both of them. Edgar and Jasmines investment options are fixed deposits (FD)
and public provident funds (PFF) because they are conservative investors due
to their low-risk tolerance. Their age, debt, and unfully paid house, in addition
to their coverage needs, limit their risk-taking abilities. FD and PFF are
minimal-risk investments with assured returns. Opening a fixed deposit
account with a bank allows the saved money to accumulate interest which
can be withdrawn when the fixed time is over (Grundl & Gal, 2017). The initially
deposited amount can also be withdrawn. A PFF is a long-term governmentbased investment plan where an individual is required to pay an annual
premium to maintain the opened account (OECD, 2020). Edgar and Jasmine
can use PFF as their retirement fund or pay their children’s college fees. On
the other hand, Paul and Ann have a high-risk tolerance due to their young
age, good credit scores, and a $100,000 inheritance, making them aggressive
investors. They can invest in high-risk ventures emphasizing capital
appreciation, such as mini-bonds and land banking. Mini-bonds allow an
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investor to lend money to a company and receive a fixed return together with
the initial investment capital at the end of an agreed period (U.S Securities
and Exchange Commission, 2022). Land banking involves purchasing large
blocks of undeveloped and for future sales or investment (NSP Toolkits, 2021).
It requires a large capital, is unregulated, and there is minimal protection if
anything goes wrong.
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