Tue | Sep 19, 2017

Financial Adviser | Kickstarting your investment programme

Published:Sunday | November 22, 2015 | 11:00 AMOran Hall

QUESTION: I intend to make some form of investment, but I am clueless as to where to begin. I am seeking your assistance.

- Demique


FINANCIAL ADVISER: It is commendable that you have decided to start an investment programme and have taken the first step by seeking assistance. It will take time to learn what you need to do, but the best time to begin is now.

To begin, it is important to have a goal in mind. Determine where you are at the personal and financial levels and determine where you want to go. You may make adjustments as you go forward, but that is fine. What is important is that you have focus and direction and that you know where you desire to be in the short, medium and long-term.

When you have a time horizon in mind, you are better able to decide the investment instruments that you will employ. If, for example, you have a short time horizon, you would best select instruments that are liquid and less risky. A long time horizon creates more room for investment vehicles, which tend to do better over the long-term in spite of market fluctuations. In any case, it is critical to have a balanced portfolio.

Your goal and time horizon tend to influence your investment objectives; so too does your risk profile. Examples of investment objectives include regular income, ease of management, inflation hedge, and exchange-rate protection.

Some instruments satisfy a specific objective. Others satisfy several objectives. Bonds, for example, are ideal for income. Ordinary stock is ideal for hedging against inflation because of its potential for capital appreciation, but it also tends to pay some income in the form of dividends. Unit trusts and mutual funds tend not to meet the income objective, but are very suitable for ease of management as well as for inflation hedge, depending on the type selected.

How much you have to invest is also important. Sometimes it is not possible to invest small sums in certain types of investment vehicles. Some dealers, for example, tend not to accept orders below a certain level for bonds and ordinary stock.

Real estate requires a large outlay of funds, so it is generally out of the reach of small investors, but they may reap the benefits of investing in it by buying units in unit trusts or shares in mutual funds that include it in their portfolios.

One instrument that is generally available to small investors is the unit trust, which tends to trade in small amounts in addition to the large amounts typical of large investors. It is a very good way to build a portfolio by consistently investing small sums.

Your ability and willingness to take risks play an important role in the development of an investment programme.

Younger investors have more time to recover from investment losses and may thus be able to take more risk but may be constrained by their more limited resources and the need to acquire personal assets.

On the contrary, older investors may be better able to take risks due to the larger pool of resources generally accumulated by them but are generally constrained by the limited time that would be available to them to recover from investment losses and the need for liquidity and income

In any case, the ability to take risks goes beyond age and resources. Investors have different attitudes to money due to their experiences, knowledge, outlook, and psychological make-up. Some investors are thus better able to take risks than others. Bearing this in mind, you need to know yourself well, especially with regard to how you relate to money and risk-taking.

There are tests available to assess your risk tolerance. Some investment dealers tend to include some very basic ones in the documents they provide to new clients.

If you are serious about investing, you should become familiar with the instruments available in the market. Read all you can about them and seek assistance to understand more about them if necessary. This will help you to make your own decisions or to better appreciate the recommendations that investment professionals make to you.

Then, when you are ready, know the companies and persons to approach to guide you and execute your orders. The Jamaica Stock Exchange can tell you who the stock brokers are, and the Financial Services Commission is able to indicate who is authorised to deal in securities. I suggest you visit their websites: www.jamstockex.com and www.fscjamaica.org .

Investing requires time and patience, and it is up to you to determine how well you do. Bear in mind that it is unwise to put all your eggs into one basket. diversification is critical to successful investing.


Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel.