New to the stock market

Personal Financial Advisor Oran Hall

QUESTION: I came upon an article written by your good self in The Sunday Gleaner dated April 8, 2012. It is titled 'Stock Market Trading 101 for Newbie Investors'. I found it interesting and educational and it has now prompted me to contact you for further advice.

I am a student currently attending a local tertiary institution. I have always been interested in the investment sector, particularly purchasing shares in companies, of course, to reap the investment benefits. I was too young then and still am, but each day, I grow older and become more mature.

I am currently in possession of US$1,000 which I do not intend to use now, and so, I am thinking to invest it, say in shares. Can you give me your guidance on how to proceed? I am currently doing my research on the stock market and other relevant entities.

- Neale

FINANCIAL ADVISER: The column you referred to is quite detailed and covers areas such as selecting stocks, the role of the stockbroker, types of orders, minimum size of orders, fees, settlement procedures, the need for research, the necessity to take a long-term approach, and to have realistic expectations.

In another column, 'More on the Stock Market for Newbie Investors', I mentioned shareholder rights, the account-opening process, the role of the Jamaica Central Securities Depository, the need to diversify and the link between company performance and stock price.

On the right track

You seem to be on the right track. It is quite fine to start investing at a young age as long as you have reached 18 and have the means to do so. I would not recommend that you borrow to invest in your youth.

You have also taken the important step of researching the stock market and other options. It seems that you recognise that it is important to diversify and thus spread your risks. That is good.

From the two columns mentioned, you should be able to make your entry into the market. It is important to know the investment dealer you are going to entrust your investment journey and experience to. Although the brokerage houses do the trading on the Jamaica Stock Exchange, you can also open your account at any of the wealth management or portfolio management companies. The advice and service you get are important, so you should also do some research on them.

I do not know that any of these companies is high-risk, but you may wish to investigate if they have a solid financial base. In any event, the investments you make are registered in your name, so you should not be exposed in the event of their failure.

Find the right mix

As you contemplate this new phase of your life, note that your success depends more on the mix of your portfolio than on the selection of the securities that make up your portfolio. You will need to include other types of securities in your portfolio as you build it.

The dividends and capital appreciation that stocks generate are good, but you should bear in mind that stock prices do decline and may take time to recover. It is good, therefore, that you are taking a long-term approach to investments. Other kinds of investments will help to give some stability to your portfolio.

You should consider that investing in non-Jamaican securities offers protection in at least two ways: protection against the depreciation of the Jamaican dollar and protection against adverse price movements in the Jamaican market. Consider this option as your resources and experience increase.

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