Personal Finance and Investment Portfolio


The financial planning process enables an individual or a family to plan for earning with an aim of converting finances to wealth. The process follows six basic steps these are, establishing and identifying a relationship with the client, gathering client data including goals, analyzing and evaluating the financial status of the client, coming up with and presenting financial planning recommendations and alternatives, implementing the financial planning recommendations, and monitoring the implementation of the recommendations (Vance 2003). This paper focuses evaluating the investment behaviour of Alan Green and analysing his current portfolio of investments, savings, and pension. Analysis of the finances of Alan will be based on case A.

About the Client

Alan, who is currently, aged 35 years and single, graduated twelve years ago with a degree in Architecture. He is currently living alone in a rented apartment in Fulham. He earns an annual income of £55,000. Further, Alan contributes to a Defined Pension scheme. Also, he pays an APR of 28% on his credit card.

Current investments

Alan’s current investments are £15,000 in the savings account (earns 0.2% per annum) and £40,000 in government bonds. Finally, Alan is a risk taker. The table presented below shows a summary of his investments.

Investment Amount Proportion
Savings £15,000 27.27%
Government bonds £40,000 72.73%
Total £55,000

The pie chart presented below shows the proportions of his investments.

Proportion of investments

Gathering qualitative and quantitative information about the Alan Green

The table presented below gives a summary of the current financial situation of the Alan Green.

Item Amount (£)
1 Total asset 55,000
Savings account 15,000
Government bonds 40,000
2 Total liabilities 0
3 Net worth of the family (Total assets – total liabilities) 55,000


  1. It is assumed that the retirement age is 60 years because it is the average age across the world.
  2. The applicable income tax rate will be 28% while sales tax will be 8.5%.
  3. The life expectancy age is assumed to be 90 years.
  4. After Alan marries, they will not have children. This eliminates the need for estimating education expense.
  5. The interest rate on government bond is assumed to be 2.61%. This represents the prevailing interest rate for a 10-year government bond.
  6. The replacement ratio is assumed to be 65% because it is the ideal rate in most countries.

Goals of Alan

  1. Alan expects to retire at the age of 60. He will not venture into business after retirement.
  2. The annual after tax income needed after retirement is 60% of his current net income (60% * £39,600). This amounts to £23,760 at current prices.
  3. Alan’s family requires the 60% income until the last expectancy age of 90.

Analyzing other qualitative details

  1. When it comes to asset allocation, Alan portrays an aggressive investor. It is shown by the ratio of assets and debt or net worth. The income from a government bond is higher than the income from the savings.
  2. Alan does not have wills.
  3. Alan has Durable Powers of Attorney.
  4. Alan has Health Care Powers of Attorney.

Financial Statements of Alan Green

Statement of income and expenses

Item Amount (£)
Net income 39,600
Annual expenses
Rent (1,400 * 12) 16,800
Total expenses 16,800
Surplus 22,800

Based on the table presented above, the total net income after taxes amounts to £33,000 while the total expenses amounts to £16,800. This generates a net surplus that amounts to £22,800. From the previous table, the net worth of Alan Green was £55,000 (Bull 2007).

Property management

Currently, the client does not own any property. He needs to consider investing in property so as to spread investment risk. Besides, investing in property will increase his asset base.

Investment management

Investment management aims at managing the risks associated with investment and maximizing returns. Basically, there are three common risks associated with investments these are, market risk, inflation risk, and credit risk. These risks have the effect of reducing the value of investments or losing the whole amount invested. Therefore, asset allocation is important because it redistributes the assets in proportions that minimize investment risk (Bhargava 2010). Allocation of assets is based on past market trends and volatility. The table shown below summarizes the investments of the client.

Investment Amount
Liquid asset
Savings £15,000
Government bonds £40,000
Total investment £55,000

The total investment need to be distributed in such a way that the investment risk is minimized while returns are maximized. The current and suggested asset allocation is shown in the table below.

Asset allocation
Current Suggested Change
Cash & reserves 15,000 27.27% 2,750 5% -12,250
Income 40,000 72.73% 0 0% 0
Income & growth 0 0% 8,250 15% -31,750
Growth 0 0% 22,000 40% 22,000
Aggressive growth 0 0% 22,000 40% 22,000
Others 0 0% 0 0% 0
Total 55,000 100% 55,000 100% 0

The table shows how the client needs to redistribute his current investment so as to achieve aggressive growth and earn income. This should be achieved in the next 10 to 15 years (Vandyck 2006). The pie chart presented below shows the suggested asset allocation.

Suggested allocation

Retirement planning

Planning for retirement entails understanding the current financial situation of the client and estimating the expenses after retirement. The table presented below shows the retirement goals of the client.

Age 35
Retirement age 60
Years until retirement 25
Annual after tax retirement spending £23,760 (expressed current prices)

The individual intends to incur £23,760 annually after retirement. However, he does not have adequate assets or resources in place for retirement. Therefore, the client needs to invest now for his retirement.

Tax planning

The aim of tax planning is to organize the financial resources of the client with an intention of reducing tax liability. The net effect is an increase in disposal income of the client. There are three ways Alan can use to reduce taxes these are, reducing income, increasing expenses and making use of the tax credits. Before retirement, Alan is assumed to operate within a tax bracket of 28%. After retirement, he will be in a tax bracket of 25%. Further, he lives in a region where sales tax is 8.5%. As a measure to reduce taxes, Alan can increase the duration of his investment so that they mature after retirement. This will enable him to pay a low amount of tax (Thomas 2006).

Cash and debt management

Alan keeps money in a savings account which earns an annual interest rate of £30. Further, Alan earns £1,044 from government bonds. The returns from investment amounts £1,074. In case of an emergency, he will rely on the returns from investment. Currently, Alan does not have any debt. Therefore, he does not have expenses that relate to debt. Based on the analysis, the client does not have a problem with cash and debt management.

Risk management and insurance

The nature of work carried out by Alan involves high risk. Despite the riskiness of the job, there is no indication that the employer provides any insurance coverage. Further, there is no indication that the client took any life insurance policy or liability coverage. This shows that the client does not have any insurance coverage. In the event that an eventuality occurs, the client might experience a financial crisis (Thomas 2006).

Survivor need analysis

Alan intends to marry within the year. In the event that premature death occurs, the future survivors may not have adequate earnings to support their lifestyle. Comparison of current and future household expense levels with anticipated surviving spouse’s income together with anticipated benefits gives an estimate of appropriate level of life insurance to take. Others family assets such as pension and retirement accounts are also used in the survivor need analysis. It is of essence to calculate life insurance basic needs estimate for each spouse. This will help reveal additional life insurance coverage that the spouse needs to take.

Disability income insurance

Apart from death, disability of a spouse may also distort the financial plans of the client. Disability has an effect of increasing the annual expenses (increase arising from increase medical cost) accompanied by a decline in income. Therefore, the client may run out of funds easily. Disability insurance aims at restoring the earnings after tax of an insured client. This helps in restoring the existing lifestyle of the client. The table below shows the disability income insurance needs for Alan.

Current income £39,600
Replacement ratio * 65%
Suggested insurance need £25,740

The suggested need of disability insurance for Alan is $25,740. The estimation of the disability insurance is based on other factors such as the amount of pension income, the inflation rate in the country, variation in living expenses, and changes in tax rates (Bailey & Kinerson 2005).

Long term care

Long term care denotes continued custodial or medical care in a health institution of a nursing home or at the residence of the patient. Long term care is provided to people who are unable to carry out one or two activities of their daily life that is, they cannot take care of themselves. Based on the information gathered from various centers, the cost of long term care in a hospital ranges between £58,000 and £100,000 per annum (Bailey & Kinerson 2005). Looking at risk management and insurance, it is clear that Alan is not adequately protected. In the event that an eventuality occurs, he will not be able to sustain his current lifestyle.

Conclusion and recommendations

In summary, it can be observed that Alan is not adequately prepared for financial eventuality. This can be seen in areas of property management, tax planning, investment management, and risk management and insurance. The client is at the risk of a serious financial crisis in the event that an eventuality occurs. Therefore, it is recommended that the client needs to come up with aggressive financial goals. The goals should have a clear timeline on when they are supposed to be achieved. This will enable the client to be organized financially.


Bailey, J & Kinerson C 2005, ‘Regret avoidance and risk tolerance’, Financial Counseling and Planning, vol. 16. no. 1, pp. 23-28.

Bhargava, A 2010, ‘An econometric analysis of dividends and share repurchases by U.S. firms’, Journal of the Royal Statistical Society, vol. 17. no. 3, pp. 631-656.

Bull, R 2007, Financial ratios: How to use financial ratios to maximize value and success of your businesses, Elsevier, Alabama.

Thomas, P 2006, ‘The difficulty of selecting superior mutual fund performance’, Journal of Financial Planning, vol. 12. no.1, pp. 34-41.

Vance, D 2003, Financial analysis and decision making: Tools and techniques to solve, McGraw-Hill books, New York.

Vandyck, C 2006, Financial ratio analysis: a handy guidebook, Trafford Publishers, Alabama.