Mon | Jan 21, 2019

Making an investment plan

Published:Sunday | January 4, 2015 | 12:00 AM
The Jamaica Stock Exchange at Harbour Street, Kingston. -FILE

Personal Financial Advisor Oran Hall

I need advice on making an investment plan. Thank you.


To make an investment plan, you need to take the following into consideration: your current personal and financial situation, what you expect to achieve from investing and the timeline for realising your goals, your ability to bear risk, the strategies you will employ, and the time available to manage your investments.

First, evaluate your personal and financial circumstances so that you can set your goals, determine your objectives and determine the level of risk you can take. Important personal matters to consider are your age, marital status, employment status, how many dependents you have and your health status.

In considering your financial position, you would determine your net worth, that is, your assets less your liabilities, taking note of all you own, and of what is owed to you and all that you owe. Take a careful look at the nature of your assets and liabilities. To invest, you will need to have cash or assets that you can convert to cash to pay for your investments.

make a budget

Make sure you make a budget to enable you to manage your money well. A budget will help you to generate savings which you can use to invest. Do not confuse savings and investments. One is short-term, the other is long-term. One will retain its value in money terms, the other may lose some of its value or may increase in value.

Next, determine what you want to achieve and the time frame within which you want to do so. Establishing a time horizon is useful in determining the types of instruments to include in your portfolio. Some instruments are easier to convert to cash than others, others can be expected to increase in value over the long term and provide protection against inflation, and others can be relied upon to provide steady and predictable income over the long term.

Aim to put a value on what you want to achieve so that you can establish a desired rate of return on your investments, but be not put off if you find it difficult to do so. Bear in mind also that you may need to revise how much it will cost to realise your goals as time progresses.

Next, clarify your relationship with money, that is, determine if you fear it or love it, and to what extent, because that will have implications for your attitude to risk-taking and your investment strategy, which will inform the types of instruments that you will select and, importantly, the asset allocation of your portfolio. At the end of the day, it is the asset allocation, also called the asset mix, which determines how well a portfolio performs. The asset mix refers to the proportion of your funds that are invested in the various types of investment instruments such as stocks, unit trusts and bonds. Initially, you may need the help of a competent professional to make this decision.

investment objectives

But investment objectives are also important. Income, growth, safety, tax minimisation and ease of management are some investment objectives. There are instruments for each objective. Some instruments can satisfy more than one objective. Interest-bearing securities offer income and safety, stocks offer growth, some income in the form of dividends and tax benefits from capital gains. Unit trusts offer ease of management, liquidity and tax minimisation in most cases. You should be careful to invest in securities that are marketable to comfort yourself that you will be able to sell when you want to.

Knowing your risk profile, time horizon and your objectives are important in that they inform the asset mix and strategy that you will employ in building and managing your portfolio of investments.

You should also determine if you have the time required to manage your portfolio or if you will need to engage the services of a professional to do so. Whatever you decide, make an effort to know even at a basic level how the prices of securities are determined and how the market operates generally.

An important part of your plan is the evaluation, which you should aim to do at least annually. You should measure the performance of your portfolio against the benchmarks you have identified and determine if it is delivering what you want it to. You should also bear in mind that you may need to make changes to your plan due to changes in the market or changes in your own personal and financial situation.

It is important to have a diversified portfolio, it is a superb risk management tool. It is also important to continue educating yourself about financial and investment matters. You do not have to start big, and you should allow for a heavy dose of patience.

Your investment plan should be written. I suggest you seek professional help if you deem it necessary.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: