Question

Mr. George Lam, aged 48 has been working for an international shipping company for the last 8 years with current income $80,000 per month. His wife, Anna, aged 48 too is a full time housewife. They have a son, Billy, aged 14. Mr. Lam’s parents are financially independent and live in Canada with George’s sister. George would like Billy to study in Canada after Billy completes the secondary school at age of 18. George also gives financial support $5,000 each month, to Anna’s parents, aged 72 and 70 respectively. Since they do not know much about financial planning and investment in their previous years, so far they just put their money in form of saving in the bank. Currently, they have about RMB300,000 and HKD600,000 fixed term deposit respectively. They learned from their friends that it may be good to invest in index fund, like the Exchange Traded Fund (ETF) so George would like to take advantage of investing in one of them. Currently, the total monthly living expense for the Lam’s family is $25,000, while the mortgage is about $20,000 per month for 12 years more. As for retirement, George would like to retire at age 60 and maintain about 60% of the current living standard. George and Ann would like to maintain an emergency fund for about HKD$200,000 on the day they retire. Regarding medical protection, only George has joined the medical scheme that provided by George’s employer. Other than that, the family has no other insurance protection.

As a financial planner, you are required to:

1. prepare a financial plan for Lam’s family including but not limited to education fund for Billy, retirement plan for George and Anna and insurance requirement for the family.

2. analyze an Exchange Traded Fund, other than the Tracker Fund of Hong Kong (Stock Code: 2800) and Hang Seng China Enterprises Index ETF (2828), then Page 2 or 2 compare your suggestion with the Tracker Fund of Hong Kong, and provide an investment advice accordingly.

3. highlight any other hidden concerns you think of and the way to cover them.

Assumptions:

a. Estimated average annual rate of inflation for the whole period: 3% p.a

b. YOU SHOULD MAKE ANY REASONABLE ASSUMPTIONS BY YOUR OWN TO FACILITATE THE CALCULATION.

Answer 1

Answer to Q1. Financial Plan for Mr.George Lam

	Current	At the age of 60
Minimum Fund (Emergency) value	200,000	500,000
Living Exp	25,000	15,000
Mortgage	20,000	-
Anna's Parents	5,000	5,000
Billys Education	-	15,000
	-	-
Insurance	10,000	5,000
Non recurring	5,000	5,000
	65,000	45,000

Assumptions:

1. George has covered only his part with insurance, and he has start investing in Insurance for his family considering the future requirements.

2. George mortgage will over in 12 years and at the time of his retirement he has no obligations to pay the mortgage.

3. George has added responsibility to cover the Anna's parents considering their age.

4. Provisioned non recurring amount to take George's personal commitments or goals.

5. Billy's education is calculated at 15,000 USD considering his higher studies and other expenses as George like him to study in Canada.

6. Capped at $500,000 as the emergency fund value.

Q 2. By Analyzing the Exchange Traded Fund, other than the Tracker Fund of Hong Kong (Stock Code: 2800) and Hang Seng China Enterprises Index ETF (2828), then Page 2 or 2 compare your suggestion with the Tracker Fund of Hong Kong, and provide an investment advice accordingly.

Ans. Suggesting to George: Currently the tracker fund and Hang Seng China Enterprises are shows good progress and the yield on long run is showing positive sign. George currently has excess over his commitments. He can invest in (Stock Code:47013 (warrants) or Debt Securities (Stock Code 890) for consistent yield.

Q3 - Highlight any other hidden concerns you think of and the way to cover them.

Ans - Hidden concerns are covered as part of first question.