Where to stash retirement funds
Oran A. Hall, Contributor
QUESTION: I have a substantial amount of money at an investment house in Jamaica paying only three per cent APR. Where else can I stash some more funds for retirement?
PFA: Although you have not stated the currency in which your funds are invested, I am assuming it is US dollar, considering the rate you have mentioned and other information in your email.
It is also fair to assume that your funds are invested in the money market in light of the rate you have mentioned.
From my survey of current rates, it seems that you are not getting an attractive rate, particularly if the sum you have invested is more than $100,000. Rates for that amount for one year range from 3.6 per cent to 4.05 per cent.
It is possible there could be higher rates, but I have not come across them.
I am not certain how you made your decision. It is advisable to shop around first. Unfortunately, I notice that some institutions do not mention their rates on their websites. Others do, but they are useless as they are not current. I suggest you make a phone call or send an email. I cannot say how well the latter will work.
It is quite possible that the rate you are getting is close to what the market is offering generally, if the sum you have placed is $100,000 or less, or if the term is less than one year. But I am not able to determine that because of the limited information you have provided.
I see that you have mentioned only one rate in relation to the funds at this institution. Does this mean that all of your money is in the same instrument? Although this approach may help you to get a better rate in the money market, it is not necessarily the best.
A concern I have is that you seem to be invested heavily in short-term securities although your goal is retirement but it is quite possible that your portfolio is quite all right considering that you have more funds "stashed" away.
Do you have funds invested in long-term interest-bearing securities and in investment instruments such as ordinary stock and mutual funds that have the capacity to increase in value?
In deciding how to invest your retirement funds, did you consider the range of investment instruments available and how suitable they are for you? What ratio of your portfolio is the interest-earning portion?
As retirement is often a long-term goal, it is advisable to put a significant portion of your funds in long-term instruments. Of course, the strategy would differ if retirement is imminent.
If you wish to move funds out of the money market, there is a reasonable supply of global bonds in the market as one alternative. They range in maturity from a few months to over 25 years and yield from just over six per cent to over 8.5 per cent depending on the term to maturity.
From the rates I have seen, even a global bond near to maturity gives a better yield than the three per cent, you are now earning.
It is not my policy to mention names. I am sure you can understand why. I suggest that you invest time in doing a survey of the market to see what the rates are like. You owe it to yourself to get the best returns on your investment, being careful in the process not to expose yourself to too much risk.
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 email@example.com