Financial Coaching How Would You

Financial Coaching

How would you apply the principles outlined in chapters One through Three to help Bill with his finances?

The challenge that Bill is facing is how to effectively invest and grow his money over the long-term. This is because he is at an age where his salary is helping to support an improved lifestyle. At the same time, he is saving his money and has no debt. These different factors place Bill in a situation where he can invest in a variety of asset classes that will help to grow his net worth and income through diversification.

This is when there is a focus on spreading out the risks of investing in different areas by having a certain percentage of his assets in them. The basic idea is that this will allow him to see capital appreciation, income and reduced risks. Moreover, this strategy is concentrating on using compounding to enhance the returns. This approach involves reinvesting the income that is received to increase the total returns inside the portfolio. When this happens, Bill's money is working effectively to build his net worth and personal income. ("Diversification," 2013) ("Compounding," 2013) (Massie, 2006)

To achieve these larger objectives there needs to be a focus on a number of areas to include: stocks, bonds, insurance / annuities and real estate. In the case of equity securities, this will provide him with an average return of 5.38%. This is based upon tracking the median performance of the markets going back to 1928. Bonds (i.e. U.S. Treasuries) can provide the portfolio with average returns of 5.88%. These two areas will offer Bill with increased levels of growth, income and stability. Utilizing the principle of compounding, the dividends and interested can be reinvested. This will allow the assets to work more effectively and reduce volatility. ("Annual Return," 2013) (Massie, 2006)

Insurance and annuities will provide added amount of protection for Bill. This will occur through purchasing life insurance with a cash value that can build up over time. While a fixed annuity, could be utilized to ensure that he as additional funds that will increase at a set annual rate. This will improve Bill's ability to account for uncertainties and to more effectively plan for retirement. Furthermore, these areas are enhancing diversification and compounding. This will take place at lower rates of return (which are guaranteed by the insurance company). However, in the future Bill could access these resources to provide added levels of protection for his family and generate additional streams of income. Any kind of interest that is received will be reinvested in these asset classes. ("Explaining the Types of Fixed Annuities," 2011) (Tabang, 2009) (Massie, 2006)

Real estate will be utilized to help Bill realize long-term capital appreciation and income. The way that this will be achieved is he could invest in different apartment buildings and commercial office space. This will provide him with added amounts of income. At the same time, there will be enhanced levels of growth from an increase in property values over the course of several years. When these two elements are combined together, he will have a significant return from this asset class. (Allen, 2004) (Massie, 2006)