Personal Finance Assignment Sample

Introduction Of Personal Finance Assignment Sample

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In this assessment our key learning objectives is to understand the scenario of Mary& Sean’s and answer to the stated questions which are in relation to greenwashing of various companies in context to ESG, investment decision making, and some other key aspects relating to investment decision making and also how should they manage their personal finance.

Part-1

1. I agree with Mary & Sean’s beliefs that companies and funds are greenwashing to exaggerate their ECG Credentials (com. 2021).

2. The reason for agreeing with Mary & Sean’s beliefs because there are many companies which uses greenwashing (which is an action of conveying false information about a company’s image in the eye of public; in terms of environmental care) as a marketing trick to gain customers to make them invest in certain companies; as there are certain customers who requires a company which is –

• More concern about ecology and environment
• More Focused towards Social Responsibilities
• More associated with Government affairs

And so as Mary and Sean’s perception is; perhaps greenwashing acts as a first belief that many companies’ greenwashes to exaggerate ESG credentials & even to back-up this fact that the belief is true is as there is a survey result published by Truthinadvertising.orgon 19^th April 2021, which shows some real-life based companies who are caught for greenwashing with type of inquiry associated allegations and its outcomes too; as below: (Earth Day 2021: Companies Accused of Greenwashing | Truth In Advertising, 2021).

Source: https://www.truthinadvertising.org/six-companies-accused-greenwashing/

Thus, the table clarifies and clears every aspects to agree with Mary and Sean’s Belief (Greenwashing in your ESG portfolio and how to avoid it, 2021).

Part-2

1. The possible recommended actions which Mary and Sean’s can opt in order to manage their finance are as follows :

1. Following money management resources by being updated with financial jargons

= As an investor they should be aware of financial terminologies and assets pertaining in the market as it helps in managing their financial resources in an appropriate manner(Castillo, 2021).

1. Analyze credit score

= As an investor they should regularly monitor their credit score to prevent errors and mistakes as it helps in getting loans on lower interest rates because of a good credit score.

1. Comparing Insurance options

= Doing this as an investor will definitely help to choose a viable plan to invest in; with lower interest rate and higher returns (Castillo, 2021).

1. Setting up corrective bank account

= Opting a good financial bank will give them a sense of security & safety towards their deposited amount in the bank and to do so they can check their investment accounts to get an idea about their present working & upcoming working conditions in a broader manner(ANON,2021).

2. The possible recommended investment option that Mary and Sean’s can opt in order to make their investment could be as follows :

• L & G Emerging Market (USD) Corporate Bond Fund

= It could be the first & foremost option which they could opt to make their investment as its type fund is EM bonds.

• Vanguard FTSE Developed Europe EFT

= It is the second & foremost option that they consider as best to make their investment as its asset class is International/ Global Stock and type of fund is Tracker.

3. The reasons of opting above investment is as follows :

• L & G Emerging Market (USD) Corporate Bond Fund

= This is to be considered as first & foremost priority in investment making option because various factors such as:

• ROI (Return of Investment) i.e. 5.20 % and it’s the most important factor while deciding investing option
• Volatilitye. Standard Deviation with 16.12% and as higher volatility means that stock prices moves a lot and thus means it gives trader opportunities for higher return.
• Alpha with +0.13 which states that investment in previous 3 years has outperformed its benchmark index by 0.13% which is a good indication all though.
• Beta with +1.22 which states that it has swinged more than the market and as it can be seen that the ROI of this investment is good and higher ROI also states higher association risk with it and as the saying goes : Higher the risk; higher the return.
• Sharpe Ratio which is -0.14 even it’s said in reference to Volatility ratio and thus lower Sharpe Ratio signifies bad risk-adjusted-return.
• Information Ratio e. +0.12, as it is said that an IR ranging in between 0.61 - +1 more than it exhibit high return potential & as per this ratio it is considered to be moderate one.

• Vanguard FTSE Developed Europe EFT

= This is to be considered as a second most priority in investment making option because various factors such as:

• ROI (Return of Investment) i.e. 5.32% and it’s the most important factor while deciding investing option.
• Volatilitye. Standard Deviation with 15.42% and as higher volatility means that stock prices moves a lot and thus means it gives trader opportunities for higher return.
• Alpha with +0.41 which states that investment in previous 3 years has outperformed its benchmark index by 0.41% which is a good indication all though.
• Beta with +1.01 which states that it has swinged more than the market and as it can be seen that the ROI of this investment is good and higher ROI also states higher association risk with it and as the saying goes : Higher the risk; higher the return.
• Sharpe Ratio which is +0.30 even it’s said in reference to Volatility ratio and thus higher Sharpe Ratio signifies good risk-adjusted-return.
• Information Ratio e. +1.31, as it is said that an IR ranging in between 0.61 - +1 more than it exhibit high return potential.

Thus, because of all this above considerations L & G Emerging Market (USD) Corporate Bond Fund is to be considered the most valuable option as risk is also more associated with this option and as per Mary & Sean’s scenario- they are willing to take more risk and want more return because of their plans and requirement and thus this investment option is best suitable for them.

4. The type of fund which is associated with those investment options are as follows :

• Tracker Bonds

= This are one of the type of funds which are usually considered as fixed term investments in which the investors’ money is invested in DBA (deposit based account) & remaining amount is invested in the stock market(Tracker Bonds - CCPC Consumers, 2021).

The basic reason for opting Tracker bonds is guaranteed capital recovery of investment you made and as the case of Mary & Sean’s they need some kind of fund in which they get guaranteed output and good return and even if we compare it with other types of funds provided in the table, it is the best one which they could get out of them (Fund of Funds - Types, Advantages and Limitations of FoFs, 2021).

• EM bonds

= EM stands for Emerging Market; these are also one of the types of funds which are basically issued by Gov. & corporations of worlds developing nations. They are considered to be the funds that are highly risky as they are found in small countries with higher uncertainties in nations & even they are considered to be as highly volatile.

The major and foremost reason to opt this bond is as it’s risky and highly volatile which directly connects to the requirement of Mary & Sean’s – which states that they are fairly adventurous in taking risk and the second reason to opt this as a first one is that this type of funds remain vulnerable to external shocks and it even connects to their willingness to invest in an ESG based companies – thus it will be also covered on same hand and even this types of bonds can give us a list of diversified bond portfolios which are more of U.S centric (Introduction to Emerging Market Bonds, 2021).

5. The terms can be individually explained as follows :

• Volatility – It is to be termed as a statistical measure of the dispersion of return for a market index, in stock market, a low volatility means the lower the risk in security whereas higher the risk means more risker the security is.

In other terms volatility is mainly used in context to Standard Deviation (SD), which states helps in measuring how prices are dispersed from the average price but they both are not always same.

• Alpha (α)- In general it is considered to be as active return on an investment in which it measures the performance of an investment against various market benchmarks.

• Beta (β) – It refers to one of the statistical indicators to measures the risk and volatility of the investment and it is said that an ideal beta is +1.0 and a higher beta indicates that the stock in market is more volatility and whereas a beta less than +1.0 lower volatility (Beta - What is Beta (β) in Finance? Guide and Examples, 2021).

• Sharpe Ratio- It is to be said as a type of ratio which helps in measuring the investment performance by adjusting for its risk (Sharpe Ratio - How to Calculate Risk Adjusted Return, Formula, 2021).

• Information Ratio- It refers to the type of ratio which gauges the risk adjusted returns of financials portfolios or assets to a certain benchmark and this information ratio is majorly used by fund manager’s to compare investment strategies (Information Ratio - Definition, Formula, and Practical Example, 2021).

• On-going Charges- It refers to the type of expense which are likely to occur during future times and can be charged to revenue or capital , even it act as collective fund for investment companies and it excludes some charges too.

6. Basically, the decision of investment options and fund opting process can be related to Asset allocation theory as in case of Mary and Sean’s ,As Asset Allocation refers to the type of strategy in which investment portfolios are divided with diverse and different asset classes in order to minimize the risk pertaining in investment.

So, as same done here as there is both alternative assets & bonds are involved to have an effective portfolio in which Mary and Sean’s can make their investment (Asset Allocation - Overview, Examples, Strategies for Asset Allocation, 2021).

7. The assumptions are as follows :

SD concept is not considered in mind while formulating decision

• On-going charges would be paid after 3 years of investment current on-going charges are NIL.
• Mary and Sean’s basic salary gonna increase by 30% over certain years.

The major reasons to formulate this assumptions are simple i.e. to derive results in a better way and here SD is not considered as Volatility and SD are used in exchanged so majorly Volatility is used while formulating decision and as due to increase in value of money, thus it is obvious that it is expected to increases over years and in terms of making decision on-going charges are considered NIL so that they could save those expenses and use it as a part of investment.

Conclusion

In this assessment the major learning outcomes are achieved and a deep analysis of Mary and Sean’s Case is studied and all answers are formulated accordingly and thus as a result we also got to know -what are possible actions, investments, funds that as investor can opt in order to manage his/her personal finance and at last we also got to know about various terminologies associated with this assessment.

References

• 2021. Available at: <https://money.usnews.com/money/personal-finance/articles/steps-to-manage-your-money>.
• Castillo, J., 2021. 10 Essential Steps To Manage Your Money The Right Way | MoneyStrands. MoneyStrands. Available at: <https://moneystrands.com/10-steps-manage-money-right-way/>.
• CCPC Consumers. 2021. Tracker Bonds - CCPC Consumers. Available at: <https://www.ccpc.ie/consumers/money/investing/tracker-bonds/>.
• com. 2021. Available at: <https://citywireselector.com/news/what-esg-investors-can-learn-from-wirecard-fallout/a1377446>.
• Corporate Finance Institute. 2021. Asset Allocation - Overview, Examples, Strategies for Asset Allocation. Available at: <https://corporatefinanceinstitute.com/resources/knowledge/strategy/asset-allocation/>.
• Corporate Finance Institute. 2021. Beta - What is Beta (β) in Finance? Guide and Examples. Available at: <https://corporatefinanceinstitute.com/resources/knowledge/valuation/what-is-beta-guide/>.
• Corporate Finance Institute. 2021. Information Ratio - Definition, Formula, and Practical Example. Available at: <https://corporatefinanceinstitute.com/resources/knowledge/finance/information-ratio/#:~:text=The%20information%20ratio%20measures%20the,%2Drecognized%20stock%20market%20indices..>.
• Corporate Finance Institute. 2021. Sharpe Ratio - How to Calculate Risk Adjusted Return, Formula. Available at: <https://corporatefinanceinstitute.com/resources/knowledge/finance/sharpe-ratio-definition-formula/>.
• 2021. Fund of Funds - Types, Advantages and Limitations of FoFs. Available at: <https://groww.in/p/fund-of-funds/>.
• The Balance. 2021. Introduction to Emerging Market Bonds. Available at: <https://www.thebalance.com/introduction-to-emerging-market-bonds-417021#:~:text=Like%20high%2Dyield%20bonds%2C%20emerging,for%20higher%20longer%2Dterm%20returns.>.
• Truth In Advertising. 2021. Earth Day 2021: Companies Accused of Greenwashing | Truth In Advertising. Available at: <https://www.truthinadvertising.org/six-companies-accused-greenwashing/>.
• What Investment. 2021. Greenwashing in your ESG portfolio and how to avoid it. Available at: <https://www.whatinvestment.co.uk/greenwashing-in-your-esg-portfolio-2618047/>.