A durable power of attorney is a contract, a legal agreement, that most people use in order to delegate the competencies of pursuing business on their behalf to a third party that stays in effect even after the person has any kind of accident, or loses his or her mental competency (“Power of attorney”, 2009, p. 1). In our case, Maria and Victor can make a durable power of attorney regarding the handling of their property related issues and also investment issues.
For Maria it would be comfortable to have a durable power of attorney to handle issues regarding her zero-coupon bonds, the assets (home) she inherited from her mother, and the benefits received under the defined-benefit pension plan. For Victor it would be convenient to have a durable power of attorney for his stock management and personal property. Both should make a joint durable power of attorney for the interest in their home.
The first thing to be mentioned here is that medical power of attorney differs from a Living Will because “it allows you to appoint someone to make health care decisions for you. Instead, a Living Will only allows you to express your wishes concerning life-sustaining procedures.” (“Power of attorney”, 2009, p. 1. ) thus for them would be appropriate both to have a medical, or health, power of attorney because this would not stop them from giving medical directions to the doctors a long as they are conscious. The health power of attorney only takes effect after they have lost their consciousness.
For Victor it would be more convenient not to maintain the ownership of both the policies but to leave one to Maria. Both of them should then have durable powers of attorney regarding their policies because in the worst scenario, if something happens to them the power of attorney will not make the benefits from the policies loose effect. By taking each ownership of one policy they diversify the risks.
In fact, after adding up the value of the estate the chances of having to pay federal taxes are high. This is true even for local taxes. The financial power of attorney, whom acts as a broker on your behalf, can help.
As mentioned above, the financial powers of attorney whom acts on your behalf as a broker can help avoid, if not completely by a large extend, the different forms of taxes. Maria and Victor can transfer their competences to someone through a financial power of attorney and include in the contract that their children would be the beneficiaries of what is to be gained along with a gradual transferring of the assets. This can be done through the establishment of a pension fund, mutual or hedge fund. After their death, their property will pass first to the fund of which their children would be then the beneficiaries.
When you think about financial planning you cannot avoid to think about investments. Here basically we are talking about the different opportunities of choice people have. And this choices are born out of the conditions people are in. The cases mentioned below are a demonstration of this axiom. Julia and Jennifer are very young with a lot of time ahead of them and still their start is in very different conditions.
Thus they have different immediate needs and have different opportunities of investing. Instead the Gents are in a quite different position. They are beginning to think about their retirement and need another type of investment. Due to the past years they find themselves in quite different conditions from Julia and Jennifer. Below are explained both cases with some advices of what they need to do regarding investments.
This analysis should start with the premises that both Jennifer and Julia have a pretty good yearly revenue from their salary. In fact their main problem is a cost problem. It is a problem of spending during their daily life. It seems quite obvious that Jennifer is in a far better shape than Julia from a financial position perspective. This is true even from a future financial perspectives of investments as well. So what should they do to gain more money? Basically what Jennifer should do is to immediately try to cut her costs and put more effort to gain some more revenue at the end of the year.
The first two things to be mentioned here are that she must rethink about her driving a leased BMW because it is an expensive car and it increases her costs significantly. She can turn the car and get another, more economical, one. Jennifer should do is to immediately try to cut her costs and put more effort to gain some more revenue at the end of the year. The first two things to be mentioned here are that she must rethink about her driving a leased BMW because it is an expensive car and it increases her costs significantly. She can turn the car and get another, more economical, one.
And what about reducing her dollar cost? She has to make is to reduce her leisure time spending from the hours she gets free from her flexible work. Julia should find another work in those hours in order to increase her revenues. Of course that nobody is suggesting she cancels her leisure time at all, the advice is for her only to decrease those hours in favor of another work that will increase her revenues.
As a pre-requisite of investment, I suggest she gets a work from which she can get employer benefits. Then she could add this benefits to the already existing retirement plan she has commenced. The final advice for her would be to relocate her $1500 from the saving account to the mutual fund for retirement. By adding this funds the retirement plan she enhances the potentials of this plan. Thus Jennifer can gradually pass to a more stable and better financial positioning. She can use the money from the second job she could find on some of her free hours to gradually repay the credit card debt she has.
We must not forget that from spending less on her car and spending less on leisure she will find herself with a diminished cost of life. This new situation will permit her to gradually accumulate a certain amount of money on whom she can build an investment portfolio.
The position of Julia is much more comfortable than that of Jennifer. Julia has no accumulated debt to pay and her life cost is actually lower than that of Jennifer. Julia has one major problem which is that of portfolio diversification. Portfolio diversification is quite important if you want to have a positive risk management of your investments (Taylor, 2006, p. 32).She has been playing good the last seven years by investing on her company’s stock and the rising value of the stock has benefited her. The other positive thing is that she has been playing good with aggressive-growth mutual funds and this has enabled her to gain enough to make a down payment for a new home she wants to purchase. But after the purchase of the home the advice is for Julia to invest elsewhere the money gained from the mutual fund she already invested.
What about investment opportunities then? These can be other mutual funds or other sort of funds, like hedge funds for example. Since her employer gives her a lot of benefits and she is already good with the 401(k) retirement plan of the company, then it would be inappropriate to invest in private retirement plans. Keeping the actual level of life costs, spending, is important for Julia. Also, continuing with the actual work and mutual fund investment, are the same important. A final consideration could be that Julia can decide to reduce the spending of her spring vacation in Mexico, that she funds with the $2000-$4000 annual bonus she receives from the company.
By doing this, she would find herself with a year-by-year increasing amount of money she could use to invest. All of the above mentioned were pre-requisites Julia should consider before making any portfolio diversification. Julia can retrieve part from the worth amount of her investment in the company’s stock and invest in other stocks from successful companies. After the payment on the house is finished, she could use the money form the mutual fund she has been investing to invest in other mutual funds, or even redirect those money in stock investment. But it would be best is she invests some money in other stocks, while keeping the actual stocks she has, and some other in different mutual funds. This portfolio diversification will significantly decrease the risk and failure potential of her investment (Taylor, 2006, p. 34).
Even if one stock goes down, the investment on the others will compensate for that loss. The same logic applies for the mutual funds. If she had invested in only one stock and one mutual fund the risk of failure would be very significant. What would she do if the stock and fund were to perform bad?
David and Sarah Gent are in a pretty good financial shape for the moment. But, since they have a child they have to think what to offer him for the future. The fact that they have been saving $1000-$2000 every month and putting them into a certificate of deposit gives them a good start in the investment world. The first advice for them would be the same as for Jennifer and Julia; they have to diversify their portfolio of investments in order to manage the risks of investments.
It is advisable that they retrieve and redeem some, not all, of their certificates of deposit and invest them in diverse mutual funds. So, since the first step they should be careful not investing all of their redeemable money from their certificates of deposit, but retain some of them as a ‘back-up’ if any ‘bad scenario’ is ever to happen. The money redeemed should be invested in different mutual funds, thus diversifying the portfolio. Another advice for them would be to invest on no-load funds and not load funds.
This is because in no-load funds the investor gets working all of the money he invests. Instead in load funds he has to pay the front-end load, or the commission which would reduce the amount of money invested (“No-load fund”, 2009, p. 1). They should be careful in choosing what funds to invest to. Growth and income mutual funds could be a good answer to their concerns for the future. These type of funds comprise equities and stock that both grow in time, and have a high dividend payment at the end of the year (“Growth-income mutual fund”, 2009, p. 1).
Instead the income funds are just funds that give high dividends but with no guarantee for future growth. Thus the risk of failure for them is more imminent. Finally, a balanced fund would be better than life-cycle bonds. As financial adviser Rosevear explains:
“Lifecycle funds are convenient, but they aren’t always a healthy choice. To begin with, their asset allocations often err on the side of being overly conservative.” (2009, p. 1)
Many people during the last years have used their 401(k) plans to invest in mutual funds, but that would not be a wise move to make. The advise for the gent’s would be to leave intact their 401(k) retirement plan and thus leaving it out of the risks associated with investment in funds.
(2009). Power of attorney. The Letric law library online. Web.
Taylor, W. (2006). Introduction to Management. Ninth Edition. Prentice Hall: New Jersey.
(2009). No-load funds. Investopedia website. Web.
(2009). Growth and income mutual funds. eHow website online. Web.
Rosevear, R. (2009). Lifecycle Funds: Nutritious, or Fast Food? The motley Fool Website. Web.