The Investment Process

Whether you are planning for retirement, trying to accumulate funds to send yourself or your children to college or saving for a deposit on a house, you will most likely have considered investing your hard earned cash so that it grows faster and so that you can achieve your goals more quickly. That’s fantastic but […]

By Sean Spiers

January 10, 2008

Royal Westmoreland Photo courtesy of Royal Westmoreland

Whether you are planning for retirement, trying to accumulate funds to send yourself or your children to college or saving for a deposit on a house, you will most likely have considered investing your hard earned cash so that it grows faster and so that you can achieve your goals more quickly. That’s fantastic but investing to achieve your goals is a process and following that process is the best way to reach your financial goals.

Steps in the process:

  • Assess your current financial situation or condition
  • Prepare a budget
  • Assess your risk tolerance
  • Allocate your funds
  • Choose an investment adviser

Assess your current financial situation or condition

It’s important to know your current financial situation if you want to get to your desired financial destination. To do this it will be worthwhile preparing a personal balance sheet, which lists all your current assets and liabilities and basically arrives at your net worth. If it is negative you may consider paying down some of that high cost debt first; if it’s positive then we are in good shape to continue the process.

Prepare a budget

If you want to save and invest you will have to find the funds to do so; for most of us this will come from our monthly paycheck. But what’s left after all those expenses? What am I spending my salary on? To find out you will need to prepare a budget that shows your income and expenditure. From this you can determine how much you have left over to invest and/or where you can cut back on to obtain the funds you need to meet your investment goals. As part of this step in the process you should also be writing down your financial goals in terms of amounts you will require and by what date and how many paychecks are left until that time. There are many on-line tools from financial services companies that can assist you with this step in the process and are well worth checking out.

Assess your risk tolerance

Some investments are more risky than others, meaning their investment returns are more volatile than others. By volatility we mean changes in the value of your investment over a short time frame. Lower risk means less volatility and potentially lower returns while higher risk means more volatility but potentially higher returns. For example the value of your savings account is likely to increase slowly over short periods of time in a fairly predictable manner while the value of your investments in, for example, the stock market can fluctuate up and down by large amounts in the short term and in a less predictable manner. Your appetite for risk will determine what assets you are comfortable investing in and by how much. Conservative or risk adverse investors are likely to stick to savings accounts and government treasury bills and may take longer to reach their goals, whereas investors with an appetite or greater tolerance for risk are more likely to invest in the stock market, mutual funds and longer term government and corporate bonds. Your risk tolerance can vary with age; the young investor has a greater time horizon to work with and so can take more ups and downs as they have time to recover. But those of us nearing retirement and who have less time it is wise to stick to safer investments.

Allocate your funds

This is the most important part of the investment process as the decisions taken at this step will influence the amount of risk and return that your investment portfolio generates. Your objective here is to obtain the highest return possible for an acceptable level of risk or to bear the least amount of risk to achieve a specific rate of return. The more risk averse you are the more you should diversify and/or stick to short-term investments such as savings accounts and money market funds.

Choose an investment adviser

Having an investment advisor who understands your needs and objectives can effectively assist you in meeting your financial goals. In selecting an adviser there is no better source than a recommendation from a satisfied customer such as one of your friends or business associates, so ask around. Financial planning needs can be complex and you may need the advice of several professionals such as accountants, lawyers, tax specialists and financial planners. In settling on an adviser ensure that they are properly licensed, are professionally qualified (ACCA or CFA or CFP), have adequate experience and work for a reputable organization.

Investment options in the region.

There are several financial services companies and investment options available across the Caribbean region. Banks, insurance companies and stockbrokers can all provide financial advice and access to investments and investment products. Check your yellow pages or go on-line for details.

There are stock markets across the region – Jamaica, Trinidad, Barbados, Eastern Caribbean and Guyana – which can be accessed through stockbrokers in those countries or through stockbrokers in your own country who may have relationships with brokers on other exchanges. Investing in companies listed on the stock market allows you to become a part owner of that company. Do your research or talk to your financial adviser as to which company’s stock is set to perform better.

The governments across the region are regularly in the market borrowing funds for their expenditure programs ranging from short-term 90 day treasury bills paying 5.5% to 6.5% to 5, 10 and 15 years bonds paying 7% to 8.5%. These investments can be purchased through central banks, investment brokers and high street banks.

There are also several mutual fund companies within the region in which you can purchase shares or units. These companies in turn invest your funds in stocks and bonds depending on their objectives, whether growth, income etc. You can go directly to these companies to invest or use a stockbroker or bank. Some mutual funds specialize in certain assets, for example real estate, so if you would like some exposure to the property market but cannot afford to buy a condo this is one route to take.

If you follow the process and explore the investment options in the region you will be well on your way to achieving your financial goals.

Sean Spiers

Former Manager, Sub-Region II at CMMB Limited

Get business updates

Sign up to get the latest articles, case studies, company news and more.

Latest Edition

Latest Edition
Business Barbados 2020
Barbados Delivers
View eBook