FINANCIAL ADVISER: Oran Hall | Investing for the best returns
QUESTION: I have about $350,000 that I want to invest at JMMB; however, I am not sure what is the best option to choose in order to get the best returns. Can you help me? I want to first invest for the short term.
FINANCIAL ADVISER: It seems that you have made up your mind about the company with which you want to do business. And they are, without a doubt, capable of advising you about how best to invest your funds and have suitable products, too.
Many of the financial institutions offer a wide range of products in a market that has developed quite well in the last 20 years or so. Much has been done also to encourage financial education.
I am not sure, though, that financial-sector professionals recognise that they have a role to play in educating their clients on financial issues and products to assist them to make informed and suitable decisions.
I note that you want to start with short-term investments. This suggests that you are primarily interested in money market instruments. Other interest-bearing securities such as bonds would not count as investments for the short term.
The various types of unit trust products are generally quite liquid, meaning they can be converted to cash quite easily, but it is best to see them as long-term investments. Ordinary stock is not recommended as a short-term investment, although it is quite possible to make a good return in the short term if the market is moving in the right direction.
I have confined my comments to the instruments above because they are the most common ones in our market and I have not mentioned savings-type instruments because they are not investment instruments.
You have not said explicitly if your strategy is to accumulate funds by investing short term with a plan to move to long-term instruments later. Perhaps you are planning to meet a short-term objective. To decide the type of instrument that best suits your needs, you should be clear about your goal, including the time within which you would like to realise it.
If you will need the funds at a time that is clear in your head now, you could select an instrument that will mature at about that time, if possible. The challenge is that you may see the rate on that instrument as being unsuitable.
On the other hand, you may choose an instrument that does not have a maturity date, a unit trust, for example. Further, these instruments do not have a guaranteed return or one that you will know at the time you are making the investment.
You should recognise that the product that best suits you is not necessarily the one that has the highest return. Your main concern should be which product among those that suit you gives the best return.
Do serious research
I suggest you have a good discussion with a representative of the company about the products that the group is offering. It would be good to get literature on the products to enable you to learn about them in a relaxed atmosphere so you can make a good decision.
You have not said if you have had any discussion with the company to this point. I believe, though, that investors need to take an open approach to where they invest their funds and thus do serious research before making a decision.
This is not to say investors should throw caution to the wind or that they should feel compelled to transact business with companies with which they are not comfortable.
But the market is quite dynamic and there are clear choices in the market place.
The decision about where to invest, and in which products, should be approached carefully and without sentiment. This requires time and even assistance from trusted and knowledgeable persons.
It is beyond the scope of this column to recommend specific financial products and the providers of financial services and products. The general guidance I offer, readers' own knowledge of financial issues, and understanding of their needs should help in their decision-making. But confidence in the advice of financial professionals is critical.
Let the employees of the company help you to make the best decision for you. If they cannot or will not give you their time and professional guidance and support, they do not deserve your business.
Clarification: In my last column of July 5, I mentioned that the Government does not contribute to the NIS. As it is funded by employers and employees, the Government contributes for its own employees but makes no contribution on behalf of other contributors.
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.