Starting all over - Getting back on your feet after a financial loss

Published: Sunday | March 8, 2009

Sancia Thompson, financial adviser at JN Fund Managers Ltd.

Research has shown that in the four-year period before January 2008, Jamaicans invested approximately $200 billion in local, unregulated investment schemes, many of which collapsed with investors' money either still in their coffers or worse, having disappeared without a trace.

While a year has elapsed since the major fallout, there are many Jamaicans who remain traumatised by the experience.

Caribbean Policy Research Institute (CaPRI) researcher and University of the West Indies lecturer, Dr Damien King, noted in January 2008 that most investors affected, mainly middle-class Jamaicans, had each put in just under $600,000 in the schemes. There are others who invested amounts of between $1 million and $100 million.

Our column this week turns the spotlight on this matter and advises Georgia, a 35-year-old secretary, who, in 2007, placed nearly all her life savings in an alternative investment scheme in an attempt to acquire her dream home within two years. Before the scheme meltdown, Georgia had put in more than $700,000 of the funds she had saved over six years. She is now doubtful about how much, if any, of her money will be returned and wants to know what to do next.

Best way forward

Advising Georgia on her best way forward is Sancia Thompson, financial adviser at JN Fund Managers Ltd.

In order for Georgia and others to move to the next step, it is important for them to acknowledge what has happened before attempting to move on, as the collapse of these schemes offers us a painful, but useful lesson.

Joachim de Posada in his book Don't Gobble the Marshmallow Ever! teaches us the lesson of delayed gratification for long-term success. In his 10-step master plan for sustained success in times of change, he notes that "one should go after what you really want, not what's easiest or convenient."

The collapse of the alternative investment schemes should be a lesson that teaches us the power of patience. Successful people make mistakes.

It took Georgia approximately six years to save just about $700,000, which is a clear indication that she was dedicated to her goal. Then she was introduced to an alternative investment scheme which offered seductively lucrative returns and which promised her the opportunity to increase her savings in a short period of time.

There was one major problem, however: Georgia risked money that she was not willing and could not afford to lose. Let me explain.

If Georgia had been willing to lose the funds then she would have accepted the associated risks, signalling her preparedness to forego the principal and its returns. However, if she had reviewed her financial position in line with her goal, then she would have realised that she was unable to afford the loss if the scheme failed.

The major distinction between willingness to lose and affording to lose, is that the latter takes into consideration Georgia's current financial position (her budget) in relation to her risk and goals. It is similar to asking how much an alcoholic can afford to safely drink. The answer is, of course, nothing.

Frame of mind

Hall & Oates' song, Starting All Over Again, demonstrates the attitude and frame of mind that one should take, having walked a painful path. So, having suffered loss, you need to set your plan into action and focus your energies on those goals. You will need to use a budget on your road to recovery. Here a few steps to help you:

Review your goals and timeline.

Realign your income and expenses in keeping with established goals. (Georgia may want to consider scaling back the type of property she wanted, but with discipline, her goal is still possible.)

Seek help. When you are ill, you visit a doctor, so why not speak with a financial adviser who can help you in getting back on track?

Food for thought: Do not dwell on your mistakes. Admit that you have made an error, take responsibility and learn from it. Successful people make mistakes and learn from them. They succeeded, and you can too. Just take hold of the opportunities as they come and stay focused.

I wish you all the best.

Email Sancia Thompson at