Dennise Williams, Staff Reporter
Sunday Business challenges the financial experts to give a 'money makeover' to our subjects. The experts will analyse income and expenditure and recommend ways to cut costs or increase income. And so, we invite you, the public to share your money woes to 'Stretch Your Dollar' and get ideas on how to better manage your money.
Write to: 'Stretch Your Dollar'
C/o Gleaner Business Desk
7 North Street
Kingston
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922-6223
EmailStretch Your Dollar
dennise.williams@gleanerjm.com
THIS WEEK we look at Dee, a 24 year old who works in a financial institution. She is single, has no children and lives at home.
Even though she has $121,933.50 in shares in a financial institution, Dee is dissatisfied with how she spends and saves her money and is looking for a better way.
She states, "As you can see I basically have no savings to fall back on (shares aside). I would like to get some idea of how I can straighten up my business and get a good saving plan on track. "
This week Karen Fitzritson of Fitzritson & Associates and staff from the National Commercial Bank contribute.
OBSERVATIONS
Dee is in excellent shape for an individual of age 24+ and should be applauded for being so investor-savvy at an early age.
Although not privy to her investment portfolio, this individual is not averse to risk as she has invested approximately $121,933.50 in equities. Therefore she understands the true concept of wealth maximisation, that it is a process and it takes time and skill to accumulate.
RECOMMENDATIONS
Firstly, we note that she invests monthly in a credit union, which I feel is a very important because of the benefits and opportunities to be gained. This investor could afford to invest an additional $500 $1,000 per month to this account.
Does this individual have aspirations to owning a home? If so, she should consider opening an account with a building society. There are Victoria Mutual, Jamaica National, First Caribbean and Scotia Bank to choose from. See what the benefits of each offer and choose an entity that matches your goals and needs. You could invest between $2,000-$2,500 per month in a building society to build up your home equity for the future.
FOREIGN ACCOUNT
I strongly recommend that they open a foreign account. Put aside at least $6,000-$8,000 per month and convert it into hard currency. This is an excellent hedge against inflation, and one has to be mindful of the preservation of wealth, especially in this dynamic environment.
As our young investor has an appetite for investing in stocks, I suggest that she invests a further $5,000 per month into the stock market. There are 10 brokerage houses in Jamaica to choose from.
However, some meaningful advice. Choose one that has strong research capabilities, it is important to make informed decisions based on accurate and current information.
Choose a financial adviser that you are comfortable with, someone who will act as a resource person and guide you with your objectives. Their responsibility is to help you to help yourself.
If you are a risk averse investor go into stocks that have a high dividend yield, which means that you will receive income on an ongoing basis.
The current average market dividend yields is between five and seven per cent; however, there are securities that pay above this range and are the stable Blue Chip Securities.
As a young investor one must adopt the strategy to buy and hold your investment for the long haul in order to really appreciate the true potential of the company.
Invest in securities where you see their future potential, therefore it is prudent to purchase these stocks when they are relatively "cheap"! Finally, allocate the remaining $5,000 into an investment account. This too can go towards future educational, retirement or travel objectives.
Note that if you invest this $5,000 monthly for the next 10 years, assuming interest rates are a constant of 13 per cent with a single digit inflation figure, you would have accumulated $1,747,769.16 over a 10-year period. Choose an institution that you can use these funds to leverage against other investment opportunities. JMMB, CCMB, Scotia Mint, Omni and such financial institutions offer these types of investment options.
CONCLUSION
I think this individual is on the right track and must applaud the fact that this individual is willing to make the sacrifices early in order to reap the benefits down the road, saving early means you give yourself a longer time to plan and you have the ability to be more flexible in your investment options.
NATIONAL COMMERCIAL BANK
Assumptions
Monthly Budget
Net Monthly Income 40,000
Liabilities
Loans, Credit Cards 6,447
Utilities (Light, water, telephone) 4,000
Transportation & Food 6,000
Credit Union Savings 1,000
5 year tax free investment 2,000
Total Expenses 19,447
Surplus 20,553
Dee wants to straighten up her business and get some good savings plan going.
Recommendations
1. Increase Credit Union savings to $5,000 per month (This savings can be used later to access a loan for e.g. a motor vehicle)
2. In addition to your monthly deposit of $1,000, make a lump sum deposit of $10,000 per month to your existing 5-year tax-free investment. This 5-year accumulated amount plus interest could be used for a car or a deposit on a house.
3. Establish a savings account with $2,500 per month for any eventualities
4. Based on Dee's age we are making an allocation of $2,500 for entertainment, she is young and needs to socialise.
5. Hold her present shares in the financial institution for long-term gain while earning dividend. When possible Dee could purchase some more stocks.
Submitted by NCB Personal Bankers
Ann Marie Dussard
Anthea Morris
Clement Ellington
