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Advisory Column: Advice for an aspiring investor

Published:Sunday | June 7, 2015 | 12:00 AM

QUESTION:

I recently came upon an article of yours online which was published on Sunday, August 4, 2014. At the time, I was researching investing in Jamaica.

I have just begun to explore the investment world and, quite frankly, I have no idea where to start. Can you provide some advice to an amateur investor such as me as to lead me on to the correct path?

- Mona

FINANCIAL ADVISER:

You have started on the right path in that you have been reading about investment matters and doing research on investing in Jamaica. Now you are seeking guidance from one you believe is capable of helping you.

It is very important to know about investments - instruments, laws, regulations, institutions and processes. You will appreciate that these differ from country to country.

I hope you are seeing yourself as an amateur in the sense that you have limited experience about investments rather than that you are not seeing it as a source of profit. While investing can be a fun activity, it is serious business and must be treated as such and as a serious source of income.

Nonetheless, it should not be treated with such seriousness that it becomes all-consuming or that failure to reap the expected returns leads to unwise actions.

knowledge

Knowing about investments is important because it gives the investor the capacity to be independent. Ultimately, it is the investor, not the investment professional, who makes the decisions.

Continue, therefore, to read relevant material and watch and listen to the various investment programmes carried by the media and do not hesitate to discuss investment matters with persons who know about investments.

I suggest you spend some time learning about the various types of investment instruments such as stocks, mutual funds, unit trusts, repurchase agreements (repos), bonds and debentures. Take care to note that there are different types of each of these instruments, which is helpful as it facilitates the tailoring of portfolios to the needs of investors with different goals and objectives.

These are some of the most basic and common ones which you will come across. There are more sophisticated instruments but focus on these for now.

Go beyond knowing what they are and how they behave and are traded. Learn what the purpose of each is. This will go a far way in matching instruments and strategies to your objectives. Know, for example, what pays interest or dividend, what has the capacity to appreciate or not appreciate, what has the capacity to protect you against the vulnerabilities of the local currency. Very importantly, know the risk associated with each type of investment instrument.

I am also suggesting that you must be clear about why you are investing - when you will need the funds - whether income or capital growth is more important to you, whether you are interested in hedging against the decline of your own currency and whether you want to manage your portfolio actively or not.

Knowing the above will help you to identify the types of instrument that suit you best.

Determine how much you have to invest and the frequency with which you want to do so, and bear in mind that investing is primarily a long-term matter so it is not for your short-term funds or funds you cannot afford to lose all or a part of.

This is not to say that you will become steeped in investment matters overnight. It will come with time and experience, and experience can come with some hard knocks. This is why it is important to know why you are investing; keeping a long-term focus will help you to remain in control when there are adverse short-term movements.

Familiarise yourself with the institutions that serve investors. Their websites tend to have useful information and you will be able to determine where to go to have particular types of transactions done.

Get to know relevant professionals employed to these companies and build good relationships with them so that you can keep well informed and be able to discuss your business with somebody you have learned to trust.

You probably do not plan to be an investment professional, but may I suggest that you invest in a recognised investment course here or abroad if you can afford it? It is an investment that can reap great rewards for you over time.

n 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 finviser.jm@gmail.com