Hopeton Morrison, Contributor
Insurance can help reduce the impact of a catastrophe as shown in this photo. - File
FROM TIME to time, persons make serious investment mistakes. Today we look at some of them.
If you are the main breadwinner in your family it goes without saying that if you are not covered with a life insurance with a sufficiently large death benefit to see your family through when the inevitable happens, you are making a mistake.
Another common mistake made by some Jamaicans is to spend heavily on children to attend preparatory school while forgetting that tertiary education will cost several times more and requires saving concurrently for this as the child goes through prep school.
Some of the grief being experienced at the Students' Loan Bureau is among young people whose parents spent heavily for them to attend expensive preparatory schools.
Generally speaking, there are a few ground rules that you should take to avoid some common mistakes. Educating yourself to take sound investment decisions is often an overlooked reality. Some persons spend upwards of three to seven years preparing themselves professionally for their chosen vocation but think it immaterial to spend five hours or more a week educating themselves on, and planning for, wise investment decisions.
LONG-TERM SAVINGS ACCOUNTS
Simple decisions such as seeking out tax-friendly investments such as long-term savings accounts, and paying more to the voluntary portion of your pensions contributions (which also offers attractive taxation benefit) will lessen your mistakes.
Once in every 10 years or so, some bright spark thinks up some money-making idea that invariably pulls a heap of otherwise prudent persons on the spurious premise that they have an idea that no one else ever thought about. On a few occasions, these ideas convert a minuscule number of very brave souls into millionaires. In 99 out of 100 times the gullible simply bite the dust.
How do you draw the line between that simple brilliant idea that works and the scam that empties your nest egg? The simple answer is to investigate and investigate again.
Some of us would be familiar with the attraction of investment frauds. Not so long ago, a great number of sensible Jamaicans lost a pile of money investing in 'pyramid companies'.
These companies effectively promise proportionate and exponential returns on the more persons that you recruit into the scam.
Some mistakes are made quite legitimately. Sometimes an investor receives plain bad advice from an inexperienced financial adviser or worse, from an experienced adviser with a self-serving agenda.
You owe it to yourself to look beyond the returns that are advertised by the different investment funds, and find out about the percentage commissions and management fees that are charged.
Here is another common one. You have quite a large amount of cash sitting down somewhere but you take around with you a large unpaid balance on your credit card. That is just poor money management.
Financial advisers tell us to diversify our portfolio. So what if you diversified into 'secure' investments such as deposit accounts, fixed-income funds, fixed-rate insurance products and so on?
Well, as rates go down, so do your returns. Diversification means spreading your portfolio across different risk thresholds.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com
