“Though mothers and fathers give us life, it is money alone that preserves it.”
An old Japanese proverb.

While that may sound a bit extreme, but the fact remains that assuring capital sufficiency is one of the most critical and hardest tasks we all face. Not only because it takes discipline to save and knowledge to devise a prudent investment plan, but because the wealth you build will inevitably be diminished by taxes, inflation and your own spending needs.

•What is Personal Investment Planning?

Personal investment planning is the development and implementation of total, coordinated plans for the achievement of one's overall financial objectives. The idea is to focus on the individual's objectives as the starting point in investment planning, rather than emphasize the use of one or more financial instruments to solve only some financial problems.

Financial Goals

Each person's financial objectives differ in terms of his or her individual circumstances, goals, attitudes and needs. However, the total objectives of most people can be classified as follows:-

•  Protection against the personal    risks of : •  Premature death •  Disability losses •  Medical care expenses •  Long-term care expenses •  Property and liability losses •  Unemployment

•  Capital accumulation for : •  Emergency purposes •  Family purposes •  Education purposes •  General investment portfolio •  Provision for retirement income •  Tax planning •  Estate planning (for one's heirs) •  Property management

Most people, in fact, use a variety of financial instruments before they can achieve all their objectives. Thus, such basic financial tools as stocks, bonds, mutual funds, insurance and real estate are essential elements of financial plans. Also involved in the planning process is the financial policy decisions that people need to consider. Examples of such policies in investments would be deciding what percentage of an investment portfolio is to go into bonds and what percentage into common stocks or deciding on what type of insurance policies to buy.

In investment planning, people consciously or unconsciously make some assumptions about the current economic climate and they plan their investment policies accordingly. Unfortunately, many people do not follow any consistent policies in making these decisions, but rather make them as each day-to-day problem comes up or as a result of some sale presentation. Therefore, one of the most important functions of investment planners is to help their clients develop sound financial policies within which they can make well-conceived specific investment decisions.

•  Who Should Plan?

Most people find themselves in need of investment planning to some degree but it is usually the already wealthy that have access to investment planners. In fact, less affluent people actually may need such planning more than those with greater wealth, because each Baht of income or capital means relatively more to them. Interestingly, many people today, as a result of their hard work, education, and consequent success have increased tremendously the need for, and the complexity of, investment planning. One product of our increasingly affluent society is the large number of people who have enough income, assets and possibilities of gifts and inheritances to find themselves, as never before, with a real need for investment, tax, insurance and estate planning services.

The overall view of personal investment planning encompasses the work of several specialized fields. Investment planning, for example, is concerned largely with the accumulation of capital and the management of a person's investment portfolio. While tax planning involves planning for the reduction, shifting and postponement of tax liabilities. Estate planning, on the other hand, is concerned primarily with planning for the disposition of one's property to heirs during one's lifetime as well as at death in such a way as to accomplish one's objectives with minimum overall shrinkage in the estate. Life underwriting traditionally involved the uses of life and health insurance but over time insurance companies will bring in equity products such as mutual funds and variable annuities to help meet investment needs.

Investment planners, bankers, brokers, lawyers, accountants and insurance agents may all assist the public in meeting their financial objectives. In fact, a person may need to deal with several practitioners to receive all the expert advice needed. This makes coordination of effort among these experts important. What is needed might be termed a “comprehensive approach” by integrating the basic principles of each specialty into a cohesive service, which is currently being developed and is known as the field of personal investment planning.

•  Costs of Failure to Plan

As the old saying goes “ If we fail to prepare, be prepared to fail.” People fail to plan for a host of reasons. They often feel they do not have sufficient assets or income to need planning or that their financial affairs are already in good order. Both of these assumptions are frequently wrong. Some people actually may fear planning, since part of it involves consideration of unpleasant events such as death, disability, unemployment, property losses and possible incapacity. Finally, people may be deterred by what they consider the high cost of investment planning services.

While there may be understandable human reasons why people neglect to plan but the true cost of not planning in terms of lost opportunities, higher taxes and other personal losses may be the highest of all. For example, a family may be unprotected or inadequately protected in the event of personal catastrophes such as death, disability, serious illness, a car accident, prolonged unemployment or similar risks of life. It is interesting to note that there are over 40 million disabled people in the United States and only one in three were born with it. Similarly, there may not be enough money set aside for education and retirement, necessitating painful compromises when such predictable needs actually arise.

When there is a closely held business interest in the family, as many Thai families do, failure to plan for the future disposition of this interest can result in severe problems in the event of the death, disability or retirement of one of the owners. In an unplanned estate, for example, the bereaved and perhaps inexperienced surviving spouse may find himself or herself faced with a multitude of unexpected and complex problems in managing property and investing money at the very time the survivor is least capable emotionally of doing so. At the same time, in the wings all too frequently wait those who are anxious to advice the survivor but not always for the survivor's or the survivor's children's benefit.

The other very important cost of failure to plan is that a person's own individual objectives may not be realized. It is quite often the case that a person is tied to an employer or a job because he or she can not afford to move. It stands to reason that a properly planned personal investment program can go a long way toward providing the individual with a desirable degree of financial independence.

•  Getting Started

The investment planning process basically involves the translation of personal objectives into specific plans and finally into financial arrangements to implement those plans. To this end, the following are the logical steps in the process.

Step 1 Information Gathering & Personal Financial Statements

A person's affairs can not be planned well without certain basic information. The kind of information needed vary with the situation, but they usually include information about the person's investments, income statements, insurance policies, retirement arrangements, wills etc. This information-gathering step does not have to be overly extensive or burdensome. It is surprising how much can be done with relatively little additional information if a person knows what to look for.

Step 2 Identifying Objectives

As a general principle, it is important to state one's objectives as explicitly as possible. Once established, a person's financial objectives do not remain static. What may be appropriate to a young married couple may prove quite inappropriate for a family with college-age children or a couple approaching retirement.

Step 3 Analyzing Present Position & Considering Alternatives

The third step in the planning process is an analysis of the person's present position in relation to his or her objectives and consideration of alternative ways of correcting any deficiencies found. Quite often, a person may be overprepared in one area but seriously lacking in others. Thus, balancing the plan is important.

Step 4 Developing & Implementing the Plan

In the investment planning process, there is not such a thing as “one size fits all”. Depending on the circumstances and complexity of the situation, recommendations for a financial plan will differ from one person to another. It also goes without saying that you can reject those parts of a plan in which you can not agree or can not afford.

Step 5 Periodic Review & Revision

No plan, once developed and implemented, should be considered a “done deal”. Circumstances change and so should financial plans. There are births, marriages, divorces, deaths, job changes and a host of other factors that may make revisions in financial plans desirable or even necessary. However, this does not mean that one can compromise on the discipline of sticking to a plan once it has been agreed upon. The final step in the process is to adopt a procedure for periodic review of the personal investment plan.

One final word

It is important to note that no amount of planning can guarantee outcomes. Like all aspects of investing, investment planning is probabilistic; it deals in likelihood, not certainty. But knowledge and discipline put the odds in your favour. After all, the world belongs to those who plan for it.