New to the investment world
I'm trying to get into the investment line of work. I haven't been to college or have any background in investments. I'm seeking your advice as to an investment portfolio. Which is best, government paper, bonds or stocks? And what is a reasonable amount to start with? What are the profits to look forward to?
It seems you want to know what you need to do to become an investment professional and how to set up and build an investment portfolio. Of course, you do not need to work as an investment professional to do your own personal investments.
To enter the investment field at a technical or analytical level such as trader, portfolio manager, analyst or adviser, you would generally be required to be educated to the tertiary level, preferably in subjects such as business, accounting and economics.
Professional qualifications such as the Chartered Financial Analyst, the Chartered Financial Planner or one of the several offered by the Canadian Securities Institute would make you a serious contender for a position in the sector. Additionally, there are several local securities courses recognised by the Financial Services Commission which make it easier for you to qualify for work in the sector, especially if you do not hold any of the professional qualifications I mentioned earlier.
It is quite possible to secure a position in the sector which does not require these qualifications but which would allow you to be in the environment. You could qualify yourself while working in the sector and then move on to your area of choice when you qualify. If you are serious about a career in investments, I suggest you take action to get qualified at the tertiary level in the first instance.
It is necessary to consider many issues when building an investment portfolio. Of importance is that your portfolio should be suitable for you. It should be structured to reflect the risk you are willing and able to take, your time horizon, your objectives, the resources you have, your understanding of the market and instruments and how much time you have to manage it.
Without knowing much about the above, I am not able to say what is best for you. Considering that a good portfolio should be diversified, I would not expect an investment professional to recommend a portfolio with just one type of security although even such a portfolio can be structured to have some diversity. A bond portfolio, for example, can include instruments with various maturities, several types of issuers or several currencies.
The best portfolio for you depends on several factors, some of which may change. This is why it is so important for you to be absolutely clear about what you want to achieve. It is quite possible that changes in your personal or financial circumstances can cause you to make changes to your portfolio. Changes in the financial markets and the economy can also make it necessary to make changes to your portfolio. In fact, even political developments can impact your investments and how you manage them.
Bonds cover a wide range of interest-bearing securities many of which are issued by governments. In fact, most of the bonds and debentures issued in the Jamaican market are issued by the government. The local market for corporate bonds is quite small. Government debt issues are generally considered to be less risky than corporate debt issues.
Ordinary stocks serve a significantly different purpose from bonds. Whereas strong reasons for investing in bonds include securing the principal sum invested and earning interest at a known rate and pre-determined time, stock pays, not interest, but dividends, and they are not guaranteed. Further, your principal is not secure as you can realise significant losses, but you can also realise significant capital gains. If you are not given to taking risk, stocks are not for you but bonds would suit you quite well.
Only you can determine how much is reasonable to invest. I would not expect you to invest money to be used for recurrent expenses or for purchasing major assets in the short term, and certainly, not funds reserved for emergencies. After a careful examination of your personal and financial situation, decide how much you can invest. With regular review, you may make changes as necessary and possible.
You can tell how much to expect from your investment in bonds as the rate of interest is often stated. Although we hardly see these in our market today, there are variable rate bonds for which it is not possible to tell in advance how much interest you will earn. Stock prices fluctuate so much, it is just not possible to say how much you would gain or lose from investing in them.
Education is key to being a successful investment professional and investor. Read what persons with a good reputation write, attend seminars if you can and follow the market reports carried by the media. Ask questions if you must and be patient. Do not expect to master the business overnight.
• Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email firstname.lastname@example.org