A tricky pre-retirement situation
QUESTION: I've recently moved to Jamaica to live and work. I should have J$20-$30,000 to invest each month, but I'm not sure where best to put it. I'm committed to working for at least the next five years. I like the idea of investing in foreign currency (pound sterling or US$) especially as I plan to travel abroad.
I've asked at some financial institutions, but I'm not confident that I have a comprehensive picture of my options. I'd prefer to use Jamaica-owned banks if there are any here. I'm 56, have burnt my bridges in the past and so have no savings to speak of, but I cannot regret the past, even knowing I have a sterling-denominated debt overseas. Your help would be greatly appreciated.
ANSWER: In the classic sense, you are at the beginning of the pre-retirement phase of the life cycle, but, your situation does not seem typical.
The approach you take going forward will depend heavily on the risks you are able and willing to take.
At this time of your life, you should ideally be at or approaching your peak income-earning years. This should also be a period of consolidation. You should have a low debt burden or be in the process of reducing your debt burden.
The priority of your investment strategy should be safety of principal - which would come from short-term and medium term fixed-income securities - but there still should be a place for capital appreciation but with caution. In this case, stocks in the more solid companies would be best.
If I understand your situation, you have some debt abroad, you have very little savings, have a planned sum to invest monthly with a liking for investments in foreign currency-denominated securities and, importantly, plan to work for a while thereby providing resources to meet recurrent expenditure and to provide funds for investment.
It is quite likely that there is more to your case than you have shared in which case there is a limit to what I can say to you. You have not said, for instance, if you have any retirement arrangements in place.
Being able to generate income in foreign currency is important in a case such as yours in which you have foreign currency commitments and intend to travel abroad.
But it is not too difficult to access foreign currency, so you should be able to convert your Jamaican dollars to foreign currency if the need arises. Further, the exchange rate is relatively stable, so the need to hold foreign currency investments is less unless the returns on such investments are superior to investments in Jamaican currency and unless you want to position yourself to boost your returns with exchange-rate gains.
If you want to make investments in foreign currency that have some potential for growth/appreciation with moderate risk, a good option to consider would be mutual funds which, by being quite diversified, reduce the level of risk to which you would be exposed.
Interest-rate levels are low, generally, regardless of currency, so you should not expect to earn much interest income although bonds, money market, fixed income unit trusts, and mutual funds have the potential to give you safety of principal.
It seems that you have some interest in putting your funds in the banking system, but I doubt that the returns you can get from them will be of great help to you. You should be speaking to one of the portfolio management companies or even a stockbroker for guidance and action.
The fact that some of the financial institutions have close family links with other financial institutions that offer products and services that they do not offer, but which would be of value to you, should help you to gain access to the products and services that you need. Although you are in one of the big rural towns, you should be able to access a suitable financial institution through one of the banks near to you.
Whether you opt for mutual funds, unit trusts, a combination of both, some bonds and some conservative, consistent-performing stocks, there is reasonable scope and diversity in the local market and access to foreign markets to enable a competent investment professional to guide you in building a suitable portfolio. In the meanwhile, see how much you can learn about the various investment instruments.
Your big challenge is that time is not on your side but a late start is better than no start. If you have the great asset of good health, you should consider using it for as long as you can to generate the income you will need to sustain you at an acceptable level.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. Email: email@example.com