Oran Hall | The route to financial success
QUESTION: I saw one of your columns recently in which you gave financial advice and, therefore, I would love for you to assist me with my financial status as it relates to how to invest and what to invest in. Please help me. I need your assistance.
Financial Advisor: I get many requests for advice on how to invest. Most of the requests come from individuals below the age of 35 who want to achieve goals such as home ownership in the very short term. Others have not indicated what their goal is. they just want to make some money.
It seems that there are individuals who want to see better returns on the money they have, and it is quite sensible for those wanting to do better financially to seek help. It is clear also that many are struggling financially and are frustrated.
In a general way, I am not in a position to offer solutions that can yield financial success quickly, although some individuals, from the cases they have presented, need a dramatic turnaround in their financial affairs. Neither can I, or any other professional, offer advice based on limited information.
You are not singular in reaching out for assistance. There is a clear need, it seems to me, for serious financial education. Fortunately, it is not absolutely necessary to do formal courses to get financial education. The media are doing a reasonable job in this regard, and there is literature that can help, but it requires an investment of time.
Those who can afford to may enrol in one of the courses offered by the Jamaica Stock Exchange, the University of the Commonwealth Caribbean, FitzRitson & Associates, or the Jamaica Institute of Management/University of Technology.
Perhaps now is a good time for employers to consider sponsoring financial education courses for their employees, who should be better able to perform when they are in better control of their finances.
It is important to have some knowledge of investments to be able to make good investment decisions, but it is also critical to be clear about why you want to invest before doing so. There is a reasonable number of investment instruments in the Jamaican market, but they serve different purposes, so it is important to know the relevance of the investment instruments to particular objectives.
Many individuals asking for advice give very little information. Often, they say they want to invest or save and ask for the best way to go about doing so. Regardless of the person being asked to give advice, certain information has to be provided.
The age of the prospective investor is important because it generally has some bearing on the risk that can be taken. Important also are the needs of the prospective investor. Is there a need for income or capital appreciation? How soon will the money be required? Is the money to be invested money that is needed for regular day-to-day expenses? If the answer to this last question is yes, then such funds should not be invested.
It is also important to know how much money is available for investment and if funds will become available on a regular basis. If funds are already invested, it is important to know how they are invested in order to ensure that the portfolio is structured to meet the goals of the investor and is sufficiently diversified to keep risk at an appropriate level.
Some understanding of the various investment options is useful. Investors should not put themselves in a position in which they have no idea about what is being recommended to them. There are individuals who get by without knowing much because there are trustworthy individuals who guide them, but there are many cases of individuals who have had bad experiences because the choices they made, or the choices made for them, were not suitable for them.
What is suitable for another person is not necessarily suitable for you, but I can tell you the purpose of some investment instruments. If you want your money to grow well, stocks are good, but they are not short-term instruments. Think about keeping them for many years and consider that you risk making heavy losses as well.
Some unit trust funds, which pool the money of many individuals for investment, can give you growth as well, but there is also the risk of loss. They tend not to be as risky as stocks. Unit trusts that invest in interest-bearing instruments are much safer but give much lower returns.
There are interest-bearing instruments that pay interest two or four times per year and sometimes more frequently, but their returns are generally low, and they are not as risky as ordinary stocks, also called shares. Consider if the time interest paid aligns with your needs for cash.
There are other more sophisticated investment instruments for experienced investors, but you should not forget that there are other forms of investment such as business, particularly one which allows you to use a particular skill you may have or to follow a meaningful interest of yours.
Your best course is to see a licensed investment adviser at a stockbroking company, portfolio management company, or other financial institution.
- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. firstname.lastname@example.org