13 Jul Before starting your assignment, please read the instructions carefully.First, it is required to answer the risk assessment questionnaire and report your final result at the end of t
Before starting your assignment, please read the instructions carefully.
First, it is required to answer the risk assessment questionnaire and report your final result at the end of the summary sheet.
Next, please use balanced growth profile weightings from the risk assessment questionnaire and follow the next steps as required on the summary sheet.
It is very important that you provide the calculation for your own case.
Risk Assessment Questionnaire
Risk Assessment Questionnaire
How would you classify your family’s overall financial situation?
No savings and significant debt.
No savings and some debt.
No savings and little to no debt.
Some savings and significant debt.
Some savings and some debt.
Some savings and little to no debt.
Strong savings and significant.
Strong savings and some debt.
Strong savings and little to no debt.
What is your current net worth?
Liquid assets (available for emergencies) $ + Invested assets (not earmarked for emergencies) $ + Fixed assets (such as real estate property) $ – Mortgage debt $ – Consumer debt (such as credit cards, loans, lines of credit) $ = Estimated Net Worth $
What is your gross monthly family income? $
How much is your cash surplus / deficit at the end of each month? $
What, if any, changes are you expecting to your cash flow during the
next one to three years?
How would you describe your understanding about investing?
Limited: I’m confused about how investments work.
Average: I understand the difference between the expected risk and return relationship of different investments, including GICs, bonds and stocks.
Sophisticated: I understand how domestic and foreign capital markets work, including how different assets respond to changing economic variables.
What net rate of return do you expect to earn on your investment portfolio?
Do you know how much risk you need to take in your investments to meet your goals?
Yes, I need %.
No, I do not know.
Willingness to Take on Risk
What is the primary purpose for your portfolio?
Safety – I do not want to risk losing any portion of my money. 0 points
Inflation protection – I want the value of my money to maintain
pace with rising costs. 2 points
Income – I want to draw an income from my portfolio. 4 points
Growth – I want to grow my money. 6 points
What type of portfolio would you like to own?
One that mostly contains mostly term deposits, guaranteed
investment certificates, principal protected notes and market
linked guaranteed investment certificates. 0 points
One that contains mostly fixed income securities, such as bonds
fixed income mutual funds or fixed income exchange-traded
funds. 2 points
One that contains mostly equity mutual funds or exchange-
traded funds. 4 points
One that contains mostly stocks from individual companies. 6 points
Which of the following portfolios are you most likely to invest in?
Portfolio A: Worst return in one year = 0%
Best return in one year = +3% 0 points
Portfolio B: Worst return in one year = -6%
Best return in one year = +8% 2 points
Portfolio C: Worst return in one year = -15%
Best return in one year = +12% 4 points
Portfolio D: Worst return in one year = -25%
Best return in one year = +15% 6 points
Which of the following portfolios would you be likely to invest in over the long-term?
Portfolio A – Does not fluctuate in value and earns a minimal
rate of return on average. 0 points
Portfolio B – Fluctuates in value by small amounts and has the
potential to earn a low rate of return on average. 2 points
Portfolio C – Fluctuates in value by medium amounts and has
the potential to earn a medium rate of return on average. 4 points
Portfolio D – Fluctuates in value by significant amounts
and has the potential to earn a significant rate of return
on average. 6 points
How long would you be willing to wait for your investments to regain any lost value?
Less than three months. 0 points
Three to six months. 2 points
Six months to one year. 4 points
One to two years. 6 points
For retirement investments only, which would you consider a bigger risk?
Failing to retire when you plan.
Running out of money during retirement.
Ability to Take on Risk
How long will you continue to remain invested before you will begin withdrawing a significant portion of your money from your investment portfolio?
Less than three years 0 points
Between three and five years 2 points
Between 6 and 10 years 4 points
Over 10 years 6 points
After reaching your goal, over how many years do you plan to make withdrawals from your investment portfolio?
Less than three years 0 points
Between three and five years 2 points
Between 6 and 10 years 4 points
Over 10 years 6 points
How long are you willing to postpone meeting your goal, if needed?
Less than one year. 0 points
One to three years. 2 points
Three to five years. 4 points
Over five years. 6 points
Total Point Calculation
Willingness to Take on Risk
+ Ability to Take on Risk
= Total
|
Total Number of Points |
Portfolio |
Recommended Asset Allocation |
|
|
0 – 15 |
Safety |
100% Cash 0% Fixed Income 0% Canadian Equities 0% U.S. Equities 0% Foreign Developed Equities 0% Foreign Emerging Equities |
|
|
16 – 23 |
Conservative |
50% Cash 40% Fixed Income 5% Canadian Equities 5% U.S. Equities 0% Foreign Developed Equities 0% Foreign Emerging Equities |
|
|
24 – 31 |
Balanced |
0% Cash 50% Fixed Income 20% Canadian Equities 20% U.S. Equities 10% Foreign Developed Equities 0% Foreign Emerging Equities |
|
|
32 – 39 |
Balanced Growth |
0% Cash 40% Fixed Income 20% Canadian Equities 20% U.S. Equities 20% Foreign Developed Equities 0% Foreign Emerging Equities |
|
|
40 – 48 |
Growth |
0% Cash 20% Fixed Income 25% Canadian Equities 25% U.S. Equities 20% Foreign Developed Equities 10% Foreign Emerging Equities |
|
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,
Time Value of Money Calculations Summary Sheet
|
Name |
||||
|
Your Current Age |
Sex/Gender (Male, Female, Other) |
|||
|
Your Desired Age of Retirement |
Life Expectancy |
90 |
||
|
Annual Retirement Income Desired (in Today’s Dollars) |
Number of Years Until Retirement |
|||
|
Length of Retirement (in Years) |
ASSUMPTIONS:
Zero current savings, no tax implications, 1% Management Fee Use BALANCED GROWTH % allocations mandate from Investor Profile to calculate NRR and RRR
|
Asset Allocation (%) |
Nominal Rate of Return After Fees (%) |
||||||
|
Canadian Equities |
U.S. Equities |
Foreign Developed Equities |
Emerging Market Equities |
Fixed Income Securities |
Real Rate of Return After Fees (%) |
||
|
Inflation Rate (%) |
ANSWER PAGE
NRR= RRR=
Calculate future value of the income requirement given the expected inflation rate?
|
MODE |
P/Y |
C/Y |
N |
I/Y |
PV |
PMT |
FV |
Calculate (PV) savings required on first day of retirement to fund annual retirement income with monthly interest compounding of the Real rate of return.?
|
MODE |
P/Y |
C/Y |
N |
I/Y |
PMT |
FV |
PV |
Calculate monthly savings required to fund retirement goal where compounding is monthly if the nominal rate of return?
|
MODE |
P/Y |
C/Y |
N |
I/Y |
PV |
FV |
PMT |
I will need to save per month to reach my retirement goal.
,
Nathalie Bachand, A.S.A., Pl. Fin., IQPF Fellow
Jeff Cormier, CFPMD, CFAMD
Derek Dedman, CFPMD, CFAMD
Martin Dupras, A.S.A., Pl. Fin., IQPF Fellow, M. Fisc., ASC
Nick Hearne, CFPMD, CFAMD
Effective April 30, 2023
PROJECTION ASSUMPTION GUIDELINES
TABLE OF CONTENTS PROJECTION ASSUMPTION GUIDELINES ………………………………………………………………………………………………….1
Table of contents ………………………………………………………………………………………………………………………………….1
1. Executive Summary ……………………………………………………………………………………………………………………….2
2. Background …………………………………………………………………………………………………………………………………..5
3. Considerations for Establishing the Guidelines ………………………………………………………………………………….8
4. Assumption subject to the Guidelines…………………………………………………………………………………………… 10
5. Guidelines for 2023 ……………………………………………………………………………………………………………………. 17
6. Illustrative Application ………………………………………………………………………………………………………………… 18
7. Financial Guidelines for Previous Years …………………………………………………………………………………………. 19
Page | 2
1. Executive Summary
LIFE TAKES PLANNING AND IT STARTS WITH REALISTIC PROJECTIONS
An important facet of the financial planner’s work is to make a variety of projections: retirement income needs, insurance needs, children’s education funding needs, etc.
To make these projections, financial planners must estimate future inflation and borrowing rates, investment returns, how long the need will exist… In short, they must make assumptions.
This is why the Institut québécois de planification financière (IQPF) and FP Canada Standards Council publish the Projection Assumption Guidelines: to help financial planners make realistic financial projections. Judicious use of these assumptions should protect both the client and the financial planner.
The Projection Assumption Guidelines (PAG) were first released in 2009. When looking at the actual rates from January 2009 to January 2023, the PAG rates are within the same range, which speaks to the reliability and validity of the PAG projections. A chart is included in the Addendum to show the PAG Results from 2009 and how they have tracked over the years.
HOW TO USE THE GUIDELINES
These Projection Assumption Guidelines are intended as a guide and are appropriate for making realistic long-term (10+ years) financial projections. Predicting the direction the economy will take and how financial markets will evolve is a difficult exercise, requiring the integration of a large number of variables and highly sophisticated valuation models.
Financial planners should also develop sensitivity analyses to illustrate and assess the impact of changes in assumptions on clients’ financial position. This is particularly important when client goals may be at risk.
GUIDING PRINCIPLES FOR ESTABLISHING THE GUIDELINES
These Guidelines were established using a variety of reliable and publicly available sources, including the actuarial reports for the Quebec Pension Plan and Canada Pension Plan. They do not represent the individual opinion of the members of the Projection Assumption Guidelines Committee, the IQPF or FP Canada Standards Council.
Using numerous sources of data also eliminates the potential bias that may be created by relying on any single source.
The fact that the Quebec Pension Plan and Canada Pension Plan actuarial reports are updated every three years ensures the Guidelines will remain stable.
Page | 3
GUIDELINES FOR 2023
FINANCIAL ASSUMPTIONS (before any administrative and investment management fees)
Note that the administrative and investment management fees paid by clients both for products and advice must be subtracted to obtain the net return.
7.4%
6.5%
6.2%
3.2%
2.3%
3.1% (inflation + 1%)
2.1%
4.3%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Emerging-market equities
Foreign developed-market equities
Canadian equities
Fixed-income
Short-term
YMPE or MPE growth rate
Inflation rate
Borrowing rate
Page | 4
PROBABILITY OF SURVIVAL TABLE 10 %
10 %
10 %
15 %
15 %
15 %
20 %
20 %
20 %
25 %
25 %
25 %
30 %
30 %
30 %
35 %
35 %
35 %
40 %
40 %
40 %
45 %
45 %
45 %
50 %
50 %
50 %
Current Age in 2023
M F M/ F
M F M/ F
M F M/ F
M F M/ F
M F M/ F
M F M/ F
M F M/F M F M/ F
M F M/F
20 99 101 102 97 100 101 96 98 100 95 97 99 94 96 98 93 96 98 92 95 97 91 94 96 90 93 96 25 99 101 102 97 99 101 96 98 100 95 97 99 94 96 98 93 95 97 92 94 97 91 94 96 90 93 95 30 98 101 102 97 99 101 96 98 100 95 97 99 94 96 98 93 95 97 92 94 97 91 93 96 90 92 95 35 98 101 102 97 99 100 96 98 99 95 97 99 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 40 98 100 102
– 97 99 100 96 98 99 94 97 98 93 96 98 93 95 97 92 94 96 91 93 96 89 92 95
45 98 100 101 97 99 100 95 98 99 94 97 98 93 96 97 92 95 97 91 94 96 90 93 95 89 92 95 50 98 100 101 96 99 100 95 98 99 94 96 98 93 95 97 92 94 97 91 94 96 90 93 95 89 92 95 55 98 100 101 96 99 100 95 97 99 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 89 91 94 60 98 100 101 96 98 100 95 97 99 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 89 91 94 65 97 100 101 96 98 100 95 97 99 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 89 91 94 70 97 100 101 96 98 99 95 97 98 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 89 91 94 75 97 100 101 96 98 99 95 97 98 94 96 98 93 95 97 92 94 96 91 93 96 90 92 95 89 92 94 80 98 100 101 96 98 100 95 97 99 94 96 98 93 95 97 93 95 96 92 94 96 91 93 95 90 92 95 85 98 100 101 97 99 100 96 98 99 95 97 98 94 96 98 94 95 97 93 95 96 92 94 96 92 93 95 90 99 101 102 98 100 101 97 99 100 97 98 99 96 97 99 95 97 98 95 96 98 94 96 97 94 95 97 95 101 102 103 100 101 102 100 101 102 99 100 101 99 100 101 98 99 100 98 99 100 98 98 100 97 98 99
100 105 105 106 104 104 105 103 104 105 103 103 104 103 103 104 102 103 104 102 102 103 102 102 103 102 102 103
The table used to calculate the probability of survival is the CPM2014 Mortality Table, based on data from bot
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