Chapter 11. Helping Investors with Financial Planning

Learning Objective

Financial Planning is an approach to building long term relationships with clients. It is also a need for large sections of investors. This unit introduces the concept of financial planning.

Financial planning is a planned and systematic approach to provide for the financial goals that will help people realise their aspirations, and feel happy.

The costs related to financial goals, in today’s terms, need to be translated into the rupee requirement in future. This is done using the formula A = P X (1 + i) n

The objective of financial planning is to ensure that the right amount of money is available at the right time to meet the various financial goals of the investor.

An objective of financial planning is also to let the investor know in advance, if some financial goal is not likely to be fulfilled.

The process of financial planning helps in understanding the investor better, and cementing the relationship with the investor’s family. This becomes the basis for a long term relationship between the investor and the financial planner.

A “goal-oriented financial plan” is a financial plan for a specific goal. An alternate approach is a “comprehensive financial plan” where all the financial goals of a person are taken together, and the investment strategies worked out on that basis

The Certified Financial Planner – Board of Standards (USA) proposes the following sequence of steps for a comprehensive financial plan:

• Establish and Define the Client-Planner Relationship
• Gather Client Data, Define Client Goals
• Analyse and Evaluate Client’s Financial Status
• Develop and Present Financial Planning

Recommendations and / or Options
• Implement the Financial Planning Recommendations
• Monitor the Financial Planning Recommendations

Life Cycle and Wealth cycle approaches help understand the investor better

  • The first step in financial planning process and the basic tool needed to translate financial plans into action is what is known as Asset Allocation.

Financial Planning Strategies:

Buy & Hold:

  • It is the most common strategy, and the most common mistake that investor make.
  • Rather you should track your investments, discard the non performances stock and keep the good performers stock in your portfolio.
  • Long term investment doesn’t mean buy and hold without adjusting the portfolio to sort out winners from losers.

Rupee Cost Averaging:

  • Rupee Cost Averaging is regular discipline in which investor never loses.
  • But there is the one limitations of rupee cost averaging i.e. it doesn’t tell investor exactly when to buy or sell a fund.
  • But in the long term investor always gain in the systematic investor plan because of rupee cost averaging.

Value Averaging:

  • The investor keeps the target value of his investment constant by investing the amount by which the investment value has come down or by cashing the increased value of his investment or by doing nothing if the value is unchanged.

Investing for long term:

  • Long term gives you the power of compounding
  • In any MF scheme “growth” option means reinvestment of dividend.
  • It is nothing but the power of compounding

Jacob’s Recommendation:

  • It combines the rupee cost averaging and value averaging method.
  • To accomplish this, Jacobs recommends using an aggressive growth fund and a money market fund of the same family.
  • Place Rs.X in a liquid fund every month. Set a target value for the aggressive equity fund.
  • Later if the value of equity fund has declined, transfer 100 from the liquid fund to the equity fund.
  • If the equity fund value has increased by 100 do nothing if the value has risen by 200 transfer 100 from equity fund to the liquid and book the profit.

Asset Allocation:

  • Asset allocation means determining the percentage of your investments to be held in equities, bonds and money market/cash instruments.
  • Asset allocation is about allocating money between equities, debt and money market segments
  • Asset allocation varies from investor to another depending on their situation financial goals and goals and risk appetites.
  • Asset allocation depends for an investor on his life cycle and wealth cycle

Boggle Recommends following strategic allocations:

  • Older investor’s in distribution phase: 50/50 (equity/debt)
  • Younger investor’s in distribution phase: 60/40
  • Older investor’s in accumulation phase: 70/30
  • Younger investor’s in accumulation phase: 80/20

Steps in developing a model portfolio for the investors:

  • Develop long term goals
  • Determine asset allocation
  • Determine sector distribution
  • Select specific fund schemes for investment
  • Boggle gives a simple thumb rule asset allocation i.e. debt proportion portfolio should equivalence to investor age. Example if investor age is 30yrs than its asset allocation would be 70/30 (equity/debt) and so on.

Benjamin Grahamin’s 50/50 Balance:

  • Benjamin Grahamin advocates 50/50 split between equities and bonds. When value of equities goes up, balance can be restored by liquidating part of the equity portfolio and vice versa.

As per Benjamin Graham

Basic managed portfolio:

Diversified Equity Value funds – 50%

Govt. Sec funds – 25%

High grade corporate bond fund – 25%

Basic Indexed portfolio:

Stock Market Index Fund – 50%

Bond Market Index Fund – 50%

Simple Managed portfolio:

Balanced Fund – 85%

Medium Term Bond Fund – 15%

Complex Managed Portfolio:

Diversified Equity Fund – 20%

Aggressive Growth Fund – 20%

Specialty Fund – 10%

Long Term Bond Fund – 30%

Short Term Bond Fund – 20%

Readymade Portfolio:

Single Index Fund with equity – 60%

& Debt – 40%

As per Jacob’s Model Portfolio

Accumulation Phase:

Diversified Equity – 65 to 80%

Income & Gilt funds – 15 to 30%

Liquid funds – 5%

Distribution Phase:

Diversified Equity – 15 to 30%

Income and gilt funds – 65 to 80%

Liquid funds – 5%


  1. Interesting write-up. I agree with your definition of Financial Planning that it is a planned and systematic approach in providing financial goals. Thank you so much for the post. I had gain knowledge from what you have posted. Hoping for more informative post from you soon. Keep up the good work. Good Luck!


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  2. People interested in getting certified in financial planning will definitely need a good cfp education course as getting that certification is not an easy thing to do. Passing the exam for this field is not a walk in the park and people going through it would need all the help that they could get - including good education.

  3. Mostly orlando financial planner work in an office, although they are required to visit clients and attend meetings. It is also not uncommon for a financial planner to work long hours.

  4. CFP Exam Preparation is one of the important things you need to have before you take the actual certification exam. Make sure that you will enroll and take the program in an accredited and authorized exam provider for you to avoid scam. By the way, most online exam providers are offering courses which are accredited and approved by different certification bodies, government agencies and states so you won’t need to experience hassle in enrolling from a local classroom or school.

  5. Good Information. Thank you for sharing and I want to share information about Gerstein Fisher which is an independent investment advisory firm that manages assets on behalf of individuals and families and helps clients with their financial goals.

  6. Nice Blog. Thank you for sharing and I want to share information about the Cash Flow Navigator. Cash Flow Navigator is a Financial Planning Advisor. It provides free information and resources for their members to plan and achieve Financial Independence.

  7. Financial Planning Process -Financial Planning Process & Financial Consultancy firms in india, Mumbai. Financial doctor is an online portal and we do not have any retail outlet. The only way to access Financial Doctor is via internet or mobile.


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