Mon | Nov 11, 2019

Oran Hall | Diversifying your personal financial holdings

Published:Sunday | September 16, 2018 | 12:54 AM

QUESTION: I just completed reading your article "Zooming in on unit trusts", which was published in the Sunday Gleaner of August 19, 2018. While it gave a synopsis of the unit trusts available, I am interested in finding out how to best invest my earnings for maximum gain. I am a recent university graduate, and started my current job in March of this year. I have since begun a retirement fund through Jamaica National, in which I deposit the maximum — 20 per cent. I also have a mutual fund with JN Fund Managers and I purchased the MJE IPO. I am looking to diversify my holdings, how can I go about doing so?

- Natalia


FINANCIAL ADVISER: I see you are out of the blocks pretty early with your retirement savings and your investment programme. You have not stated your age, but I would not be surprised if you are a young person. Seeking guidance is a positive initial step.

My primary purpose for presenting the unit trusts as I did was to help readers recognise the unit trusts that are similar and thus enable them to compare apples with apples. There is no great wisdom in comparing unit trusts which are unlike each other.

At the same time, the unit trusts were classified in a way that would help readers to identify the objectives of the different types of funds. Readers who have an understanding of their investment objectives would thus be assisted to determine the funds best suited to them.

From the list in that column, you would select from the unit trusts which are geared towards capital growth if the primary objective is to get maximum returns over the long-term, with the risk of short-term fluctuations in their performance.

The value of your pension contributions is an important element of your net worth and you may even include it as a line item under investment assets. Although the management of those funds is left to the fund manager, it would be useful for you to know at least the asset mix of the fund.

A great positive from investing in the Approved Retirement Scheme is the favourable tax treatment of both the contributions and the income earned thereon while they are invested in the investment scheme. 

The JN Mutual Funds - which are very similar to unit trusts - have published information on five funds, each with its own set of investment objectives. Three of them are primarily for low risk investors. There are two money market funds - one local, the other global. Both invest in local and global money market instruments so they are primarily for capital preservation.

There is a global fixed income fund which invests in regional sovereign debt securities and local and international corporate bonds denominated in the Jamaican dollar and the US dollar, and real estate. It is described as being best suited for medium risk investors and corporate investors and is a hedge against the depreciation of the value of the Jamaican dollar.

The Global Equity Fund invests in local and international equities for long-term capital appreciation, thereby providing a hedge against inflation. It also offers protection against the loss of value of the local currency, but it also provides income from dividends. This is a fund for investors comfortable with high risk.

You have not said in which of these funds you have invested. I hope you carefully considered your own goals and objectives before deciding how you would invest your funds. Is your mutual fund investment a one-time investment or do you intend to invest in the fund over time?

You need to be mindful of the fact that your willingness to invest in particular investment instruments should be in line with your risk tolerance. In other words, you should have the capacity to take the risk you are willing to take.

From the information you have provided, the only clue I have of the type of risk you are willing to take is that you have invested in a particular stock which went public for the first time. It is good that you have decided to diversify your portfolio. This makes sense.

To be able to make your next steps, I suggest you consult a qualified investment adviser with whom you should share what your current portfolio is, outline your goals and evaluate your situation. Listen critically to the advice you receive and then work with the adviser to create a suitable diversified portfolio.


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