Lecture 03

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Lecture 03

  1. 1. Islamic Wealth Planning and Management By Md. Shahedur Rahaman Chowdhury 1
  2. 2. Topic Three:Wealth (asset) allocation process 2
  3. 3. Describe the main components of wealth allocation process and explain the significance of each to the success of wealth planning.• One of the most important aspects of successful wealth planning is the process of wealth allocation. – Establishment of objectives – Identifying potential opportunities – Determining risks and constraints – Potential investment channels 3
  4. 4. Financial planners should be aware of two major components• Investment Policy statement• Portfolio Management Process 4
  5. 5. Investment Policy Statementi. Return Objectives• Stability of Principal• Income• Growth of Income• Capital appreciationii. Risk Objectivesiii. Identifying Constraints• Internal 5
  6. 6. Investment Approach• Passive Investment Approach• Active Investment Approach• Semi-Active Investment ApproachTransaction Cost:• Explicit• Implicit• Missed trade opportunity Cost 6
  7. 7. Constraintsi. Internal• Liquidity• Time• Unique Client Circumstancesii. External• Tax issue• Legal issue and regulatory requirements 7
  8. 8. Risk tolerance/ Interaction between Willingness and Ability to take riskWillingness to take Ability to take RiskRisk Low HighLow ?High ? 8
  9. 9. The portfolio Allocation Scoring system (PASS)1. High long –term total return• Most (5)• Very (4)• Some (3)• Little (2)• None (1) 9
  10. 10. The portfolio Allocation Scoring system (PASS)2. Accumulation of deferred Capital gains•Most (5)•Very (4)•Some (3)•Little (2)•None (1) 10
  11. 11. The portfolio Allocation Scoring system (PASS)3. Tax Advantages•Most (5)•Very (4)•Some (3)•Little (2)•None (1) 11
  12. 12. The portfolio Allocation Scoring system (PASS)4. High current income•Most (1)•Very (2)•Some (3)•Little (4)•None (5) 12
  13. 13. The portfolio Allocation Scoring system (PASS)4. Low total return fluctuation•Most (1)•Very (2)•Some (3)•Little (4)•None (5) 13
  14. 14. The portfolio Allocation Scoring system (PASS)6. Low single –period loss probability•Most (1)•Very (2)•Some (3)•Little (4)•None (5) 14
  15. 15. The portfolio Allocation Scoring system (PASS)7. High degree of liquidity•Most (1)•Very (2)•Some (3)•Little (4)•None (5) 15
  16. 16. The portfolio Allocation Scoring system (PASS)Total Score Money Market / Fixed Income/ Equities35 5/5/9029-34 10/10/9023-28 20/20/6017-22 30/30/4011-16 40/40/207-10 50/40/10 16
  17. 17. EndQ&A 17

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