Discuss about the Optimal Investment Strategies and Intergenerational.
The Tertiary employees are the employees who provide their services in three defined service sector such as health, education and hospitality industries. These tertiary employees are more worried about their investment choices in which they should invest their capital due to the changing and ramified economic factors. It is observed that if the market factors are showing the positive results then these tertiary employees should invest their capital in different investment choice plan. On the contrary to that, if the market is highly fluctuated then they should invest their capital in defined benefit plans. In this report, investment choice plan of the tertiary employees have been gauged on the basis of on the basis of interest rate, purchasing power of the investors, inflation rate and balance of trade of the economy in the particular time period. If these factors are positive and showing high return to investors then they should invest their capital in investment choice plans. However, time value of money and tax exemptions available on the investment will also be the major factors while determine the investment choice of the tertiary employees
It is observed that the systematic investment plan is the investment plan in which tertiary employees will invest their capital on the regular interval with the specified amount. Investment plans are made with a view to increase the saving habit of the investors in their investment and increase their overall output in effective manner. It is analyzed that these investment options gives higher return to investors. If these investment plans are not managed on the basis of different factors then it will increase the overall outcomes and efficiency of their investment choice plan. The investment plan is highly affected by the return and risk associate with the investment. If these factors are positively analyzed then it will increase the value of the investment of the tertiary employees.
The tertiary employees are determined as the third segment employees who provide the services to their clients instead of offering goods. These services include all the advance, aces experience, discussion and business promotions. Tertiary employees are indulged in providing their services in the two main industry sectors such as profitable industry and non-profitable industry. Ideally, tertiary employees who are working in the financial sectors are more inclined toward adopting the investment choice plan as compared to the defined investment plan. They feel that if they invest their capital in the investment choice plan then they could increase their value with the effective rate as compared to the return available on the defined investment plan. However, tertiary employees who are having high salary and pay more tax to government takes only those investment options which offer them the tax benefit on their investment.
Defined benefit plans
The defined benefit plan is employer sponsored investment plan which will provide the end benefit to employees at the time when they get retried. In order to compute the benefit available for Tertiary employees in defined benefit plan, following formula is used such as length of their employment time period, salary history, their professional record in the organization etc. In defined benefit plan the return available for the Tertiary employees are known to Tertiary employees whom they will get by the end of their working or at the time of their retirement (Bartram, S2018). In addition to this, in other investment choice options, Tertiary employees will be having no idea about the end investment results which they will get after their retirement. It is observed that if the Tertiary employees wants to have less risk and wants to have known result at the time of their retirement then they will need to invest their capital in the investment choices such as defined benefit plan or pension funds. In this investment employees and employers both will make the investment in their investment choices (Henretta, 2018).
It is observed that the investment choice plan is the amount of investment options which is available for the Tertiary employees to create value on the investment. There are several investment choice plans such as superannuation contribution investment plans, stock investment, buying portfolio or undertaking the long term investment systematic plans. It is analysed the investment choice plans are accompanied with the higher risk so they also offers higher return if the market factors are positive. The investment choice plans should be undertaken by Tertiary employees only when they feel that market is showing the positive factors (Consigli, et al. 2018). It is analyzed that Tertiary employees who are having core financial knowledge will invest only in those investment sectors which will provide the good investment return. Tertiary employees having tendency to take less risk will invest their capital in defined investment choice plan (Julius Giarmarco, 2017). The choice of investment is highly based on the several factors such as interest rate, purchasing power of the investors, inflation rate and balance of trade of the economy in the particular time period. These factors are positive then it will assist Tertiary employees to create value on their investment. However, the risk and return associated with the investment choice plans are the big major factors for the investment purpose of the investor (Kerzner, and Kerzner, 2017).
Factors affecting decision making of Tertiary sector employees or Investment issues
It is evaluated that the return is the amount of benefit available for the investors on their investment choice it is observed that the return is influenced by the investment securities plan, risk associated with the same and time value factors of the investment (Parke, et al. 2018).
Defined benefit plans are now converting into the sophisticated investment plan in which return will be increased with eh increased return of the market itself. However, the changes in the investment plans have been made to reduce the negative value creation of the investment due to the time value of money (Brown, 2018). In addition to this, Tertiary employees who are having high tax obligation due to their higher salary are also using the defined investment plans mixed with the investment choice plan to cover the more tax exemption in their investment plan. The scenario planning is the most suitable investment options which could be used by investors to create value on their investment (Settersten 2018).
It is considered that the defined benefit plan of the Tertiary employees is primary available on the issue of the inaccurate estimation of employee’s pension benefit pan and obligation of the same. The Employee’s pension benefit obligation reveals the present value of the liability of employee’s pension benefit in the future. The defined benefit plan estimate the return available on the investment in contest with the present time but the different investment choice plan and superannuation investment plans considers the different investment return available for the investors in context with the future factors (Sialm, Starks, and Zhang, 2015).
The time value of money is the important factor which impacts the investment decision of the investors. It is observed that if the investment choice of investors provides less return on capital employed then it will negatively impact the value of capital invested in the long run. It is analyzed that the return on capital employed should be more than the inflation rate if investors want to overcome the negative impact of the time value of money. In case if the defined benefit investment plan offers less return as compared to inflation rate then Tertiary employees should invest their capital in the investment choice plan (Stiff, et al. 2014).
It is evaluated that the time value of money reflects that the present value of money is more worthy than the sum that will be available in future and that is just because of the potential of earning capacity of the money available at present (Aggarwal, and Goodell, 2015). These concepts consider the interest rate, purchasing power of the investors, inflation rate and balance of trade of the economy in the particular time period.
Taxes are the fee charged on the different assets of the individuals or corporations enforced by the government to finance the various government activities. For this tax planning is done which analyses the financial situation and plan for the savings or securities from a tax perspective. Main motive of tax planning is to ensure the tax efficiency for the savings (Brinch, Hernæs, and Jia, 2017). The amount of tax exemption depends on the investment plan tax exemption is exceptional in case of defined benefit plans as there is a complete tax exemption for the investments made in this plan whereas the other investment choice plans are considered for the tax fee. This tax fee in these plans is less in comparison to the tax paid for the direct income. Therefore, in terms of taxation defined benefit plans are way more worthy than the other investment plans (Settersten Jr, 2018).
Tertiary employees should invest their capital in the investment choice plans when they are ready to take high risk and more inclined towards investing money in the highly risky portions with a view to create high value on their investment.
Tertiary employees who have high salary and have to pay high tax on their income should take those investment options which offer tax exemption on their income.
In case of higher inflation rate, Tertiary employees should invest in the investment choice option which offer higher return on capital employed.
The lock in period also plays important role in the investment purpose of Tertiary employees. If these employees have fluctuation in their jobs then they should undertake investment choice option plan to invest their capital (Zhou, Chow, and Xu, 2017).
There are several factors which might affect the investment decision of the tertiary employees. It is evaluated that if the proper programs and financial strategic planning is undertaken then the territory sectors employees could increase the overall return available on their investment. It is analyzed that the defined benefit plan is useful for the investors who are less inclined towards taking investment risk in their investment. The defined benefit plan provide less return on investment but used by investors to create value on the investment with zero % risk on investment. Now in the end, it could be inferred that investors who wants to enjoy the tax exemption then they would better off to enjoy the part of salary in the investment options which will give them more tax exemption. The time value off money will be considered when the return available on the investment is less as compared to inflation rate.
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