Sam Johnsons’ family situation favors a number of financial planning options. At the age of 40, he still has 20 years before he retires at age 60. He is in a good financial state devoid of mortgage repayment and is capable of saving $150 a month at marginal interest. Personal financial planning is a good option for Johnson.
Johnson has the option of investing in common stocks which are the majority of stocks held by the public. These stocks earn dividends, and stockholders enjoy voting rights. Compared to corporate bonds, common stocks have potential to yield higher returns ( Cull and Sloan, 2016) . Johnson can consider this investment options with caution given that in the event that the company goes bankrupt and liquidates, shareholders cannot receive their money until bondholders, creditors and preferred shareholders are paid. This could spell gloom for Johnson especially if he decides to put all his savings into this scheme. The process of paying bondholders and other critical parties can take a long while and jeopardize Johnson’ dream of facilitating quality college education for his children.
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In order to cushion against uncertainties about dividends and losses arising from liquidation, Johnson can consider investing in preferred stock. The advantage of preferred stock is that a fixed dividend is perpetually guaranteed. One of Johnson’s goals is to increases his interest earnings from what he is currently enjoying, preferred stocks can give him an idea of how much to expect so that he can project his future financial position with certainty ( Cull and Sloan, 2016) . Preferred stockholders are also given priority in case the firm runs bankrupt or is liquidated. Although this option denies the investor voting rights, the level of financial gains expected favor Johnson’s situation. Another type is a stock that Johnson could consider the hybrid stock; they are a form of preferred shares that can be converted into a fixed number of common stock at a specific time. This option allows investors to enjoy voting rights. Hybrid bonds are ideal for investors who are not averse to risk-taking and therefore uncomfortable with the option of putting all their investments in one basket ( Cull and Sloan, 2016) . Investing in this kind of scheme provides the investors with the option of regular income through dividend payouts and the opportunity to build capital appreciation while avoiding risk. Johnson has the objectives of raising income and accumulating capital towards payment of fees for his children, investing in hybrid stocks is the practical option for him to achieve these twin goals. However, investors who choose this option decline the benefit of a steady increase in value and high returns gained in all equity funds during a bull market.
With personal financial planning, Johnson is able to gauge his regular needs and decide the amount of money he can set aside on a regular basis. His goal is to accumulate enough savings to enable his children who are 3 and 8 years old respectively. He effectively needs a savings plan of fewer than ten years when his children will be old enough to attend college. There is a possibility that Johnson might get a pay rise at work which can go a long way towards boosting his savings ( Cull and Sloan, 2016) . Personal financial planning can be combined with a life insurance cover that secures the family in case the investor is indisposed or dies. Through the guidance of a financial planner, Johnson can put his money in the shares of promising companies listed on the stock exchange. Shares in the stock exchange can earn dividends for him. Johnson can also consider investing the saved money in government bonds; these are forms of government borrowing which is considered the safest investment option in global financial markets. The best options for Johnson are investment options that do not involve high risk. Because Johnson has a goal to invest in the education of his children, it is advisable for him not to gamble with his savings. By taking safe options like shares in listed companies and government bonds, he can have a safe haven for his savings and earn marginal interest out of them.
Johnson can consider investing in mutual funds. A mutual fund is a professionally run investment scheme that is usually run by an asset management company which gathers a group of people and invests their money in stocks, bonds, and other securities. An investor becomes part of this fund by purchasing mutual fund units which can be invested and redeemed at the fund’s current net asset value (NAV). The NAVs keep fluctuating, and every investor has a part in the gain or loss of the fund ( Statman and Glushkov, 2016) . Mutual funds are ideal for ordinary persons who do not understand the complexity of the money market but wish to grow their investment portfolio. Small investors benefit from the expertise of professionally-managed and diverse portfolios, bonds and other securities ( Safari, Mansori and Sesaiah, 2016) . Johnson is a new investor who has a decent job, and it is likely that he bears only casual knowledge of the money market. He is also a low-risk investor based on the saving plan that he has already adopted that earns him little interest. Johnson, therefore, needs secure the future of his financial status by joining a mutual fund scheme and benefit from the investment diversity that mutual bonds provide. Johnson also a good period on income generation of twenty years which allow him to adequately select an investment plan that not only caters for his expressed needs of savings for school fees for his children and increase interest but also plans for his retirement. Mutual funds allow investors to save for their life after employment so that they can enjoy quality life in their sunset years ( Safari, Mansori and Sesaiah, 2016) .
Sound financial decisions can help Johnson achieve his two expressed goals and also exponentially increase his financial portfolio. He must be careful not to put the bulk of his savings in high-risk schemes and must keenly consider options that offer diversification. Mutual funds are an ideal option considering his regular stream of income and the young family that he is obligated to nurture.
References
Cull, M., & Sloan, T. R. (2016). Characteristics of trust in personal financial planning. Financial Planning Research Journal , 2 (1), 12-35.
Safari, M., Mansori, S., & Sesaiah, S. (2016). Personal Financial Planning Industry in Malaysia: A Market Survey. The Journal of Wealth Management , 18 (4), 29-35.
Statman, M., & Glushkov, D. (2016). Classifying and Measuring the Performance of Socially Responsible Mutual Funds. The Journal of Portfolio Management , 42 (2), 140-151.
