ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
QUESTION: I am an undergrad student at the University of Technology, Jamaica attending full time. I am 22 years old and have accumulated funds over the past years to $160,000. I would like to invest that amount for long-term with great returns. I have done some research but I am still confused and unsure of where to start. I would like a few suggestions on which institution I could visit and what investment products are most suitable for me. – Smith
FINANCIAL ADVISER: You have learnt a very important lesson: it is necessary to save to be able to invest. It is good that you are committing to taking the long view in regards to investment. Although not guaranteed, this should enhance your prospects for getting positive returns.
By stating that you want great returns, you are indicating that you are interested in capital appreciation. You are not going to derive the returns you want by investing in income-bearing securities such as bonds so your focus would likely be on ordinary shares and capital growth unit trusts and mutual funds. These are the more basic instruments for investors not yet ready for the more sophisticated instruments such as derivatives, which are not available in our market anyway.
You no doubt realise that the instruments capable of giving what you call great returns are also very likely to give very low returns because they are the more risky instruments. They tend to see more short-term fluctuations but tend to give good returns over the long-term.
If you have been following the local stock market and other stock markets, you would have noticed the decline of recent weeks due to the current and expected impact of the coronavirus pandemic on economies across the world.
The good thing is that such negative market behaviours do not last so the time will come when prices will again move in a positive direction. Investors who buy ordinary shares at times like this tend to do well if they are patient.
If you are going to invest in ordinary shares, it would be prudent to buy relatively small amounts over time to take advantage of the declining prices.
You would also want to spread your resources among several stocks in various types of companies from different sectors of the economy. That would give you some amount of diversification with the attendant spreading of risk.
A more effective approach, though, would be to invest in the unit trust. There are several different types operated by several different companies. For capital appreciation, you would need to invest in the capital growth funds. Most of these funds invest in equities, real estate and even some interest-earning securities. Many invest in local companies, but there are some that invest in companies based in other countries. These provide some level of exchange rate protection considering the weakness of the Jamaican dollar.
You can further diversify by buying units in funds in different unit trusts. The main advantage in this approach is the differences of the philosophy guiding the management of the funds, which could cause differences in how they perform. In much the same way that you would engage in research before investing in equities, you would also research the performance of the unit trusts.
Past performance can serve as a reasonable guide to the future but does not guarantee future performance.
There are several companies you can visit to get guidance. The stock brokers are a good example – www.jamstockex.com/investor-centre/jse-brokers/. You may also check the telephone directory under Investment Advisory and Securities Service, which list the stock brokers and other licensed investment dealers. Some entries in the Yellow Pages list the services they offer, but you can also get useful information from the web sites.
You can also find some portfolio management companies and unit trusts under Investment Advisory and Securities Services in the Yellow Pages, and you can also do a search on the internet to identify the stock brokers, unit trusts and wealth management companies.
Considering what you have said about the funds you have, I am not expecting that you have any thoughts about using any of these funds for recurrent expenses or emergencies. It is a good practice, nonetheless, to have some liquid funds to take advantage of new investment opportunities.
It would be a good idea to check the resources I have recommended before connecting with an investment adviser to avoid being totally blank when you have your first meeting. It will also help you to ask better questions and to have a basic understanding of what is being said to you.
This can be a long learning process but be patient and keep focused and level-headed.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.
