Personal Financial Adviser | Taking your earnings to the next level
Q: I am an average working Jamaican who would like to take my earnings to the next level, but I have very little financial intelligence on how to invest. I have some extra cash that I put away each month but just putting my money in a savings account seems wrong to me. Instead, I want to have that money work, but I don't know where to start. Can you refer me to an investment instrument that I can use to accomplish this?
- K. White
A: I have noticed that many persons, especially in the early career phase, are
very keen on investing but
feel inadequate because of their limited knowledge of investments and the low rate of returns on interest-earning instruments.
This situation has really reduced the scope for growing wealth. The days of high interest rates and thus attractive yields on bonds and similar instruments seem destined to remain in the past. The question arises, though, about whether the high rates of the past were meaningful considering the high levels of inflation then.
Having said that, though, you are justified in questioning the wisdom of putting your money into the banks. I agree that the rates are paltry. The rates on bonds are better; some even give a real return, that is, the rate of return is higher than the rate of inflation.
You clearly do not want bonds in light of the approach you seem to be considering. You have not said that you plan to make monthly investments, but you have a programme of saving each month.
Your practice of saving a portion of your income each month is a good and commendable one. If you have savings, you will have resources to invest; investing regularly, be it on a monthly basis or some other option, is the way to go.
The investment options are limited. What can I say to you that I have not said to many others who have sought my advice in the past? Nothing really. What is very positive is that you have recognised that you are not where you want to be regarding building your own investment portfolio, but you will get there.
The most important step is the first step, and I feel certain you are ready to make it.
I doubt that you are ready to face the stock market with its risks and uncertainties but with its great potential for making good money over the long term. You can participate in that market one day, but because I believe that investors should understand what they are getting involved in, it does not seem that that option is the one for you now.
In time, when you are equipped to understand how the market works and are able to determine the quality of stocks, you will be ready.
So I come to the instrument that I have been recommending to many readers, particularly people like you who have limited investment knowledge and experience. You guessed it unit trusts.
The options are many and varied, there is at least one type to satisfy each investment objective, they are easy to buy, they do not require much money to make an investment, and they do not generally require much of your time as they are managed by professional investment managers.
They do cost more than most other investment options, but that is outweighed by the many advantages they offer. In due course, you can transition to stocks, for example, if you so desire. What is important is that you begin somewhere, and I commend you for wanting to get more value from the money you earn and initiating steps to start the process. Notwithstanding what I said about stocks, you will need to spend time understanding unit trusts.
The unit trust management companies are Barita Unit Trust, JMMB Fund Managers, NCB Capital Markets, Sagicor Investments (Sigma Funds), Scotia Asset Management, and VM Wealth Management.
I suggest you make contact with a few of them - preferably face to face - and let them know what your objectives are. Ask them to give you information on the funds best suited to your needs, such as the minimum investment allowed, unit price, securities that make up the funds, their current performance and their performance over the last three years or so.
You should be able to make some comparisons before making a final decision. Bear in mind that you can buy units in more than one fund and in more than one unit trust.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. firstname.lastname@example.org