Oran Hall | Financial independence for 100% commission based salesman
Question: I am a Jamaican and I would like to invest. I want to spread my investments to achieve my short, medium and long-term goals. I prefer a tax-free option. My long-term goal is financial independence, having my money work for me while I travel the world to work and also vacation. I want to work with a broker who provides personal financial planning and charges low fees. I am a salesman, 100 per cent commission-based, and earn my income in US dollar. I would like to know how much money would be a good sum to start out with and what institutions in Jamaica can facilitate my requirements.
Adviser: You have spelled out why you want to invest and how you would like to do it, though not as concretely as would be required, to give you the results you seek.
You are right in recognising that you should have short-, medium- and long-term goals. Equally important would be to be specific about such goals with an indication of when you would like to achieve them.
KNOW YOUR COSTS
Do you have an idea of what it would cost to achieve them today so that you can project how much they could cost at the time you expect them to be met, and how much you need to invest now and in the years ahead, and the returns that would be required to make those goals realisable? Knowing the answers to these questions would be the first step on the path to the realisation of your goals. This approach is not as far-fetched as first appears as many persons do so, though not in a formal way.
A tax-efficient investment programme is a very good way to go, but I doubt you will find just tax-free instruments as you pursue the options that the market has to offer. Stocks and unit trusts fit this approach but not bonds. The long-term savings account would fit it also, except that that is primarily a savings facility and is very limited in terms of the maximum that may be invested - $1 million per year for five years.
You will observe that these are the more traditional instruments, but members of the investment community are quite capable of showing you other options.
You have given your definition of financial independence. It seems that your proposed long-term lifestyle will cost a pretty penny, but you are also planning to work while your money is working so you could make it happen.
If you interview some of the stockbrokers, you should be able to determine who is best able to deliver what you want, but although brokerage fees were deregulated over 20 years ago, I doubt you will see significant variation in the fees they charge. There are also several companies that offer portfolio management services but not stockbroking services.
How you earn your employment income is probably your most critical consideration. Commission-based employment income can potentially pose very serious challenges. Income earned in this way can be very uncertain. Sometimes income can be excellent. Other times, it can be extremely low, even absent.
How it is managed is critical. I suggest that you determine what you want your basic lifestyle to be and budget for that. Set aside the excess in the good months and create a reserve from which you can draw in the bad months.
In your planning, determine how much you want to invest each period of time, whether weekly, monthly, or quarterly, for example. The cushion built up from the very good months should also provide a source of funds for investment, and manage carefully your appetite for more expensive tastes, especially when you make good money in a particular period.
You are earning strong currency. Make some US-dollar investments and investments in other currencies as well. Making exchange-rate protection an investment objective has great value to a portfolio that has instruments denominated in a weak currency.
Considering what you want to achieve and when, market conditions and the employment income you earn in an average month, you should be able to determine how much you can afford to invest each month. It is all up to you.
Ultimately, guidance from a competent financial services company can go a far way in building a useful portfolio, but it is also necessary to educate yourself so that you can make your own decisions or relate intelligently to the person who is assigned to your account.
- Oran A. Hall, the principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. email@example.com