In­vest­ment op­tions for a young univer­sity stu­dent

Jamaica Gleaner - - BUSINESS - Oran A. Hall, prin­ci­pal au­thor of ‘The Hand­book of Per­sonal Fi­nan­cial Plan­ning’, of­fers per­sonal fi­nan­cial plan­ning ad­vice and coun­sel. Email fin­viser.jm@gmail.com.

QUES­TION: I am a 20-yearold univer­sity stu­dent who wants in­for­ma­tion on vi­able in­vest­ment op­por­tu­ni­ties in which I can in­vest. Can you please as­sist me with in­for­ma­tion on how to go about do­ing that?

– Akeem FI­NAN­CIAL AD­VISER: I sug­gest that you ap­proach the mat­ter from the po­si­tion of what your in­vest­ment ob­jec­tives are. Some pri­mary in­vest­ment ob­jec­tives are cap­i­tal growth/ in­fla­tion hedge, reg­u­lar in­come, ease of man­age­ment, liq­uid­ity, se­cu­rity of prin­ci­pal and hedge against ex­change-rate risk. Con­sider also the level of risk you are able and will­ing to take and when you will need the pro­ceeds. The re­turns would also be im­por­tant to you.

It is quite likely that you are think­ing about earn­ing from the funds you have to help to meet your ex­penses dur­ing your course. In this case, you would fo­cus, not so much on in­vest­ment in­stru­ments, but on sav­ings in­stru­ments. These are found pri­mar­ily in the banking sec­tor, but, at cur­rent rates, you have very lit­tle to earn.

You can choose short-term in­stru­ments is­sued by the Bank of Ja­maica, such as Trea­sury Bills, which gen­er­ally have ma­tu­ri­ties rang­ing from 30 to 365 days and are priced at a dis­count but ma­ture at face value, thereby gen­er­at­ing some in­come. Ex­pect yields of 6 per cent or less per an­num. You may be able to in­vest as lit­tle as $5,000 if you sub­mit a ten­der to Bank of Ja­maica at one of its auc­tions, or you may source them from a li­censed se­cu­ri­ties dealer, but you may be re­quired to have much more money.

COMATOSE BOND MAR­KET

Repur­chase agree­ments — com­monly called repos — pay in­ter­est when they ma­ture at the end of 30, 90, 180 or 365 days, but you would need to have at least $1 mil­lion. The Govern­ment of Ja­maica is­sues ‘bonds’ of var­i­ous ma­tu­ri­ties, more than 20 years in some cases, but that mar­ket is not very vi­brant now. Cor­po­ra­tions also use bonds to raise money, but that mar­ket is comatose. Bonds gen­er­ally pay in­ter­est twice yearly, so they are not suit­able for per­sons who need in­come more reg­u­larly.

You may want to see your money grow and not be too con­cerned about in­come. If that is the case, stocks would be worth look­ing at. But you need to know that there is no cer­tainty that your money is se­cure. Stock prices do not move only in one di­rec­tion: they move up and they move down. And there are times when they are down for a long time. Ul­ti­mately, the price of a good stock does rise and sub­stan­tially too in the longterm in many cases.

In­vest­ing in stocks takes time, as you need to de­vote time to re­search and anal­y­sis to de­ter­mine which stocks suit you best and which prom­ise good re­turns over the long term. Stock prices may rise — and sub­stan­tially, too, — but when you make a com­mit­ment to this in­stru­ment, see it as a long-term one.

If you are not com­fort­able with the risk of in­vest­ing di­rectly in stocks but want to ben­e­fit from them, nonethe­less, the door is still wide open through unit trusts. These in­vest­ment in­stru­ments are re­ally pooled funds whereby the fund man­agers use the money sourced from many unit hold­ers to in­vest in a wide range of in­vest­ment in­stru­ments.

The na­ture of the fund is de­ter­mined by the type of in­stru­ments in which it in­vests such as bonds, eq­ui­ties, real es­tate or a com­bi­na­tion of in­vest­ment in­stru­ments. Some funds are iden­ti­fied by their in­vest­ment ob­jec­tives such as in­come or cap­i­tal growth.

RISK AND AD­VAN­TAGES

As these in­stru­ments are di­ver­si­fied, they fa­cil­i­tate the spread­ing of risk. They are also quite liq­uid as the unit trusts buy back the units read­ily in much the same way that they sell them read­ily. The price of those in­vested mostly in in­ter­est-earn­ing se­cu­ri­ties tend to rise con­sis­tently, but the same can­not be said for those that in­vest in stocks. Some in­vest in sev­eral types of se­cu­ri­ties and tend to fluc­tu­ate less than those in­vested pri­mar­ily in stocks.

Unit trusts of­fer a wide range of op­tions as there are so many types of funds in our mar­ket to­day, which al­lows in­vestors to reap ben­e­fits, not just from in­vest­ments de­nom­i­nated in Ja­maican cur­rency, but in the US dol­lar.

An ad­van­tage that all unit trusts of­fer is ease of man­age­ment as they are man­aged by pro­fes­sional man­agers, thus mak­ing it un­nec­es­sary for in­vestors to spend time do­ing re­search on in­di­vid­ual se­cu­ri­ties and mak­ing trad­ing de­ci­sions. You do not have to in­vest large sums each time, but may opt to in­vest rel­a­tively small sums as they are avail­able.

To start your in­vest­ment pro­gramme, you need to make con­tact with a li­censed se­cu­ri­ties dealer such as a stock bro­ker or wealth man­ager/port­fo­lio man­ager or, for unit trusts, one of the unit trusts. The Yel­low Pages can as­sist you to find them.

Youth is a good place to start. You would be sur­prised to see how the value of your port­fo­lio grows over time.

Unit trusts of­fer a wide range of op­tions as there are so many types of funds in our mar­ket to­day, which al­lows in­vestors to reap ben­e­fits, not just from in­vest­ments de­nom­i­nated in Ja­maican cur­rency, but in the US dol­lar.

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