Life Cycle Planning

Question 1

Three Stages of The Financial Life Cycle

Answer 1

Stage 1: The Early Years

Stage 2: The Golden Years

Stage 3: The Retirement Years

Question 2

The Early Years

Answer 2

Stage 1: The Early Years - Involves a long period that centers on the accumulation of wealth. Goal setting, insurance, home buying, and family formation are highlighted in terms of planning. The phases included in this stage are Young Adult, Family Formation, and Family Development.

Question 3

The Golden Years

Answer 3

Stage 2: The Golden Years - Involves a shorter period approaching retirement. Financial goals shift to the preservation and continued growth of the wealth already accumulated. The phase included in this stage is Family Maturity.

Question 4

The Retirement Years

Answer 4

Stage 3: The Retirement Years - Involves more spending and less saving. Safety, income, and estate planning take on increased importance. The phase included in this stage is Retirement.

Question 5

Constant ratio Plan

Answer 5

As the name implies, a constant ratio plan adjusts the portfolio back to its target weight

Question 6

Variable Ratio Plan

Answer 6

A variable ratio plan rebalances, but it stacks the proportions in favor of assets that have performed poorly in recent periods.

Question 7

. What are two life events that can impact your finances?

A. Marriage

B. Opening a checking account

C. Children

D. Budgeting

Answer 7

Correct Answers: A. Marriage and C. Children

Explanation: Marriage and children are the two life events that can have a profound impact on your life and finances.

Question 8

Newly married couples should always open a joint checking account as a first step to planning their finances.

A. True

B. False

Answer 8

Correct Answer: B. False

Explanation: If the couple has incompatible money management styles, they may need to consider two accounts. If they have compatible styles, a joint account may work for them. Just remember, there is no one right way to handle accounts. The couple needs to find a system that works for them.

Question 9

What are some of the financial planning steps on starting a family?

A. Buy all new baby furniture.

B. Appoint a legal guardian and update your will.

C. Review your financial plan.

D. Investigate flexible spending accounts.

Answer 9

Correct Answers: B., C. and D.

Explanation: The key steps to financial planning on starting a family are: Update health insurance to include your child. Notify insurance company of the child’s birth (i.e. a beneficiary on life insurance policy). Review life and disability insurance to ensure adequate coverage. Investigate the use of a flexible spending account through your employer if a day care provider will care for the child. Save adequately to cover the new baby costs. Childcare expenses should be discussed before planning for a child and included in your budget. Update your will and appoint a guardian for your child. Review your financial plan. Save for the child’s education early should you decide to help with higher education expenses.

Question 10

Young Adult

Answer 10

As a young adult, Consumption and Savings Planning and Disability Insurance Planning should be an integral part of your strategy to achieve lifelong goals.

Question 11

Family Maturity

Answer 11

The family maturity phase - is part of stage 2 of financial life cycle planning and involves a transition from the earning years, to your retirement years.

Question 12

Retirement

Answer 12

Tax reduction, protection from inflation, safety, income and estate planning become key to retired individuals.

Question 13

Family Development

Answer 13

Retirement planning, insurance planning and estate planning are the paramount needs of this phase

Question 14

Family Formation

Answer 14

Family Formation: In this phase, your planning must go beyond merely helping to fund the down payment on your home. Your children’s education, emergency funds and retirement planning must also be undertaken.

Question 15

What is the significance of understanding the financial life cycle?

A. Helps you to keep up with other people.

B. Helps you to better understand the timing and areas of financial concern you’ll experience.

C. Allows you to focus on typical concerns earlier and to plan ahead with fewer problems.

D. The financial life cycle does not apply to most people.

Answer 15

Correct Answers: B. and C.

Explanation: The financial life cycle generally applies to most people. The knowledge of financial life cycle gives a better understanding of the timing and areas of financial concern, enables one to focus on those concerns earlier, and plan ahead to avoid future problems.

Question 16

Which of the following typically occur during Stage 1 of the financial life cycle?

A. Initial goal setting

B. Insurance planning

C. Home purchase

D. Preservation of the wealth

Answer 16

Correct Answers: A., B. and C.

Explanation: The first stage involves goal setting, insurance, home buying, and family formation in terms of planning. Preservation of the wealth already accumulated is the priority in the second stage of the life cycle.

Question 17

Which of these are the main priorities during Stage 2 of the financial life cycle?

A. Fund your children’s education and get out of debt.

B. Fine tune your financial plans.

C. Solidify retirement.

D. Purchase a home.

Answer 17

Correct Answers: B. and C.

Explanation: Stage 2 involves fine-tuning, solidifying the retirement goals, and reviewing financial decisions like insurance protection and estate planning. Funding children’s education, home purchase and debt planning are activities of stage 1 of the life cycle.

Question 18

Which of the following will continue during Stage 3 of the financial life cycle?

A. Purchase a home.

B. Ensuring continued wealth without income.

C. Adjust insurance planning to fit needs.

D. Prepare and or complete all estate planning documents.

Answer 18

Correct Answers: B., C. and D.

Explanation: Stage 3 involves ensuring continued wealth, despite not having an income. In addition, continuous reviewing of the insurance planning and estate-planning decisions become paramount.

Question 19

What option best defines the objective of asset allocation?

A. To increase your return on investments while decreasing your risk.

B. To guarantee the best return on your investments.

C. To reduce risk.

D. To increase your risk and return.

Answer 19

Correct Answer: A. To increase your return on investments while decreasing your risk.

Explanation: Asset allocation is an investment term that deals with how your money must be divided among stocks, bonds, and cash equivalents. The objective is to increase your return on those investments while decreasing your risk.

Question 20

Which of these options hold true for diversification?

A. Diversification is an important strategy used by investors to help reduce risk on investments.

B. Diversification can guarantee that your investments won’t suffer if the market drops.

C. Diversification can help in balancing risk.

D. Diversification divides your money in several different classes of investments.

Answer 20

Correct Answers: A., C. and D.

Explanation: Investors protect themselves against risk on investments by spreading their money among various investments so that if one investment loses money, the other investments will more than make up for those losses. Diversification not only reduces risk but also balances one’s portfolio.