Financial Adviser | The ideal investment for a Jamaican-American
QUESTION: I'm looking to invest in Jamaica, where my navel string is buried. Every penny I work here in the US, I put in Jamaica. I own two homes there, and I have four million Jamaican dollars to invest. I am scared of stocks and would like a good return monthly. Could you let me know which investment is ideal for me? I am retiring soon and am very disappointed in rental properties.
FINANCIAL ADVISER: It is not often that prospective investors are so clear about what they want. The challenge is to determine if the market is able to deliver.
You have stated your objective clearly, you want regular income. You have effectively ruled out some investment options. You are scared of stocks, which would not be able to deliver
regular income, anyway, as dividends, if paid, are not paid monthly.
You are disappointed with rental properties which, generally, give monthly income. It is such a pity this does not seem to be working out for you.
Most unit trusts do not make income distributions and the few that do, tend not to make significant distributions.
The local bond market has not been buoyant since the last debt exchange and bonds do not pay interest monthly; generally they pay interest twice yearly.
The instruments that pay interest monthly are the very short-term instruments, that is, those with a maturity of about 30 days. Repurchase agreements - repos - and Bank of Jamaica Certificates of Deposit would be the best instruments for you.
If you use these financial instruments to address your need for monthly income, it would be necessary for you to collect your interest at each maturity and to re-invest the principal. But there is no guarantee that a new instrument would be issued to replace one that has matured.
Depending on the dealer handling your business, for the sum you have, you could expect a rate of three per cent to five per cent for a 30-day repo and about five per
cent for a Bank of Jamaica Certificate of Deposit. And it is possible that the interest earned could be subject to tax. The rates for longer maturities would be marginally higher.
But the interest on the sum you mentioned would not go far in meeting your needs, it seems to me. If you have other sources of income, you could be in a better position than I am able to determine.
Although you have not said how many years you are from retirement, I can understand why you are keen on earning regular income. In fact, it goes beyond that; you want to preserve your principal. Avoiding stocks is one way to do so. Being risk averse close to retirement is sensible.
If you have other investments, I suggest you make a list of them, determine their value and see what portion of your portfolio is in the various types of investment instruments. If your priority is current income, your portfolio has to be structured to reflect it.
If your portfolio is not able to generate sufficient income to cover your living expenses in retirement, and you have assets that have good capital value, you could sell them then to close the gap.
Make sure to investigate all retirement benefits that will be due to you when you do retire, and do what is required to secure them.
I commend you for saving and investing. This is one way to drive destitution away.
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.