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Financial advice for a high-school teacher

Published:Sunday | June 1, 2014 | 12:00 AM

Oran Hall, Personal Financial Adviser

Your article in The Sunday Gleaner of May 18, 2014 was quite informative and useful. I particularly like the advice on the Treasury bills and unit trusts. I am 28 years old and in my second year of teaching. Due to financial constraints, I can only put away $5,000 per month. With the cash being so low, I really would like it to stretch as far as it possibly can and work for me. Are the Treasury bills and unit trusts right for me? How do I go about starting? Which institutions are best? One key feature of any savings plan that must be included is that I do not want an excessively long investment period and there should be some liquidity. Are stocks a good option?

- Steffi

FINANCIAL ADVISER: Being as clear as you are about what you want makes it quite easy to select the instrument that best suits your needs. From the instruments you have mentioned, the unit trust is the most suitable for you.

Although Treasury bills are liquid and short term, it is not likely you will source them in the amounts you indicated. Stocks fail all the tests you have mentioned. They are neither short term nor liquid, and the chances of successfully placing a $5,000 order are not bright.

Unit trusts

Unit trusts can be purchased in small amounts. The unit trust companies have varying minimum purchase levels but $5,000 will work for some. They are also quite liquid as the companies tend not to require notice to surrender the units.

Except for cases in which the transaction is large, the waiting period for payment is short. The time horizon for them is determined by the investor. In other words, the investor may opt to hold them for a short time or for an infinitely long time. This is true for all kinds of funds - even those that invest in long-term instruments such as ordinary stocks or real estate.

Unit trusts offer much scope for diversification. You may diversify by management by investing in funds managed by different management companies. You may diversify by investing in several types of funds: equity funds, money market funds, mixed funds, to name a few.

You may invest in funds that invest in Jamaican dollar-denominated securities only or in funds that invest in securities denominated in foreign currencies and the Jamaican currency.

To start, go to the websites of the various units trusts and see the types of funds that they offer. Get information from the management companies on the performance of the funds. You will notice that some are new but there are others that have been around for quite some time and thus have a long track record.

Significant growth

The unit trust sector is expected to grow significantly in light of recent developments. Five companies now operate unit trusts.

  • Barita operated two funds for a long time but have just added two new funds.
  • Jamaica Money Market Brokers operate three funds. These funds were formerly operated by the Capital and Credit Group and prior to that by the Jamaica Unit Trust.
  • Scotia Investments operate the funds previously operated by Dehring Bunting and Golding and prior to that by the Eagle Group.
  • Sagicor Investments operate the funds which were previously managed by Sigma but they have expanded them and now offer more funds and a wider range of funds than the other players in the market
  • NCB Capital Market is the latest entrant to the market but you can expect others to enter before long.

You may want to know the arrangements each company has in place to facilitate the purchase of new units on a programmed basis and even how you can go about opening an account.

In cases where there are a bid price and an asking price or offer price, the difference will help you to understand the spread that the companies take. That will not inform you, though, about the management charges levied on the funds. What is of greatest importance is the yield of each fund, but note that past performance does not guarantee the same level of return in the future.

What is very positive is your interest in starting an investment progamme at a relatively young age, although your resources are now limited. By maintaining this course, you can enhance the prospects for future financial security.

Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers free personal financial planning advice and