Investing for retirement

Oran A. Hall, Contributor

I currently have a pension account with a financial institution through my employer. I am not sure if it is the best institution to have my pension. If I am advised to move it, where is the safest institution and can I move it?

I am interested in stocks and mutual funds primarily for mid- to long-term gains and to supplement my pension. Which is the best place to open a mutual fund account, and how much money can I open that account with? I am 25 years from retirement.

- Len

PFA: It seems that the vehicle being used to save for your pension is an approved retirement scheme, which operates differently from a group superannuation fund.

I understand quite well why you would be keen to entrust your pension funds to a competent manager. Your pension and the quality of your retirement depend to a great extent on who manages your pension fund.

Although I recognise your genuine need for specific guidance, it is not my policy to use this forum to recommend specific investment instruments or companies. I can offer general guidance, which can help you to make a decision, but that is all I can do.

Is there a specific reason why you are wondering if your pension funds are in the right place? Are you dissatisfied with the investment performance of the funds? Do you think their feesa are too high, or are you not satisfied with their service? Is it that you do not have convenient access to your account, or that the reports are generally late and do not provide useful enough information? Do you feel they do not have enough experience in the business? Are your concerns based on experience, or are you going just on gut feelings?

The approved retirement scheme is an individual retirement scheme, unlike a superannuation fund, which is a group arrangement, so you can choose to move your pension funds elsewhere. It is your decision.

If you choose to terminate the arrangement with the current provider, you would have to have your funds transferred to another pension arrangement.

Bear in mind that it is likely you would incur charges to terminate the current arrangement and charges to enter into a new arrangement. You should also note that although, some companies operate as both investment managers and administrators, others may offer just one of those services.

It is a good idea to have a supplementary pension arrangement. It is hardly likely that your pension will be adequate to fund your retirement expenses.

Investing for appreciation is also good because of the protection it promises as a hedge against inflation. Of course, you no doubt recognise that it is the most risky investment option.

Of note is the fact that you identified stocks and mutual funds as your preferred investment vehicles. The latter offers good diversification and flexibility.

Let me point out that the mutual funds being marketed in Jamaica, and there are many of them, are foreign-investment vehicles.

The unit trust is their local equivalent. If you want Jamaican investments, the appropriate vehicle would be the unit trust. The mutual fund would be the vehicle of choice if you have a preference for foreign-currency investments.

In selecting a fund, you would naturally look at its performance over the last five years, or so, and compare it to that of similar funds. That is the only comparison that has any meaning, so a fair comparison cannot be made between a fixed-income fund and a mixed fund, for example.

Comparing funds that are apparently similar can also be meaningless. If two growth funds use different strategies, there is no real basis for comparing them, and it would be worthwhile to investigate if there have been significant changes in strategy in cases where fund performance has shown appreciable changes.

A big advantage of mutual funds and unit trusts is that they do not require investors to have large sums to open accounts or to continue making investments. It is true that the minimum sum they require varies, but that is to be expected. Generally, some companies will sell a minimum of 100 units.

Make the best use of the next 25 years as you prepare for a happy retirement.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning. Send feedback to finviser.jm@gmail.com