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FPSU
®
Study Guide
Chapter 1: Financial Planning Process
To be used in conjunction with the money back guaranteed
Online FPSU
®
Exam Preparation Tools
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SeeWhy Financial Learning
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Life Cycle Approach
The life cycle approach is a theory which states that there are four stages of life and at
each stage a client will display a different approach to risk. The four stages are:
1.
Accumulation
•
Very few assets and significant debts (e.g. mortgage, student and car loans).
•
Income is low, especially if one parent stays home to care for the children.
•
Long time horizon until retirement, so their portfolio should be more growth
oriented.
2.
Consolidation
•
Income comfortably exceeds expenses.
•
Even though retirement may still be years away, their portfolio should be adjusted
more towards fixed-income securities.
3.
Financial Independence
•
Living expenses are financed mainly through investments and pension income.
•
Unable to make up for any significant losses in the portfolio as no longer in the
labour force.
•
Even more of the portfolio should be invested in fixed-income, and stocks should
be blue-chips.
4.
Gifting
•
Sharing the wealth with family and charities.
•
The investor's time horizon switches from his or her own needs to the needs of
those receiving the gifts.
Financial Planning Process
The plan should:
•
Determine the client’s current financial picture
•
Document their goals for the future
•
Outline the required steps to reach those goals