Practical Finance: Putting your money to work
Putting your money to work can seem like a daunting task. I mean you could send it to work KFC, Cepep or a big corporate wuk. How do you find the right place to deploy your hard earned funds? What happens if your money is liming and drinking by Pancho’s during the day and loss the wuk? Well, having a plan helps.
Let me first acknowledge that the way persons deal with money is a function of their psychology and life experiences. Over-saving may be the result of a conscious or unconscious fear of ending up “broken to thief”. Not saving enough could be a response to a feeling that it makes no sense trying to save, I have one life to life, tomorrow go sort itself out. Understanding the cause and dealing with those feelings is imperative to managing your finances properly.
First off, you don’t need to have plenty money to put it to work. You need to understand that investing is a slow, steady process. As my old cricket coach, the great Charlie Davis, used to say “one-one go fill the basket”. The key is to make periodic investments over time to take advantage of the power of compound returns (return “pon top” of returns). Anything promising a big return over a short space of time is probably a scam. Stay away from things you don't understand or have no training in. A sou sou is not an investment. A traditional sou sou is a savings mechanism and the other type of sou sou, is a pyramid scheme and 100% illegal.
Second, there are many financial institutions out there peddling various types of investments. Speak to an investment advisor…a registered investment advisor, not your barber/hairdresser, not some random DJ bloke on some urban radio station whose idea of an investment is a new iPhone. If you have a lump sum, a big wad of singles, a nest egg, yuh win a lotto, there are institutions out there that will manage the whole thing for you (for a fee of course).
Before you jump een though, the first thing you need to determine is what level of risk are you comfortable with. Do you “love-off” risk like it's a thick reds from Arima or the rastaman in the Facilities department, or are you more conservative and don’t want somebody spouse put you in a headlock on the Avenue? The higher the risk, the higher the return...or it should be.
When looking at the return on an investment don't just look at the year-to-date returns. Look at the 1yr, 3yr, 5yr and returns since inception. You need to understand the track record of the investment and the investment manager. Is it a good mutual fund or is the manager just lucky this year? If the manager is lazy and just investing in Funds that follow an index, then you could do that yourself….with a little guidance and a brokerage account.
CAUTION: don't be fooled, past performance is not necessarily a predictor of future results. Doh take chain up from any smart-man agent or investment advisor or somebody who cousin man make big money in X or Y.
You could invest locally or internationally. To invest in individual stocks in either market you will need a brokerage account. Locally you’ll also need an account with the Trinidad and Tobago Central Depository (TTCD) to hold your shares fuh yuh.
In terms of Mutual Funds, locally we have some with what we call fixed NAVs (Net Asset Value) which is basically the price of the units. So for example if the fund has a fixed NAV of $10, the price of a unit will always be $10, so you don't have to worry about fluctuations in price, you get paid a return based on the assets in the fund. But remember less risk equals less return right. Plus, yuh hadda be sure the institution will have the funds to honor that fixed price eh.
There's one fund out there that has a price guarantee, which means that as long as you keep your funds invested for at least 3 years you cannot get back anything less than what you put in. You hear that?? Yes fam! However, know what yuh doing eh, that guarantee is only good if the company could pay it. Plus, what you get in safety you might hadda give up in returns.
DO NOT…DO NOT…DO NOT…have a debit card attached to your investment account. It is an abomination!!!
The next thing to consider are the fees. Always consider the cost of getting into, out of or the cost of management of your money. I ain't calling no names but there are funds charging more in management fees than they pay in returns. So basically you're giving away your money. If you don’t mind giving away money then you could send some my way.
Then there are other assets like bonds, fixed deposits, CDs (certificates of deposit not the Best of Baron), ETFs, real estate, putting two Maxi on the road, opening a peewah stand etc. You also have funky things like investments backed by mortgages or car loans or commercial loans, etc
The key in all of this is there are many options, some relatively straightforward like individual stocks and Mutual Funds, and others that require expert advice. The key is to stay invested. You can't build for your future on saving alone.
TANA