FOR INVESTORS seeking high yielding fixed income investments, bonds can be the ideal choice. Bonds are attractive because they pay
regular interest income plus the principle is repaid at the bond's maturity date.
But how do you decide which bond is right for your needs? Well, it depends on what stage of life you are at and what your particular financial objectives are.
Although it is advised that you sit with a wealth manager and create a personalised strategy before you invest, consider these generalised options.
INVESTORS AGED 21-34
Even though your main focus may very well be getting your financial life in order, now is the time to become a disciplined investor. Adopt an investing
philosophy that will guide you in creating your strategy and
choosing your investment products. Investing properly will help you achieve your financial objectives whether it is paying off student loans, buying a car, getting married, or buying a house. And it is never too early to begin thinking about setting up your retirement fund. Very few companies offer a retirement package that is sufficient to cover your retirement needs. All this can be achieved through dedicated, disciplined investing.
Ideally, your objective is to maximise your wealth. At this stage of life, your investment horizon stretches over 30 to 40 years. And because you have a lot of time on your hands, you can take calculated risks to enhance your returns.
STRATEGIES
For you, high yield bonds with longer horizons are ideal. Remember, bonds can have maturity dates of up to 30 years. This means that your invested dollars will work for you while you have your most productive years to earn.
Consider corporate bonds, which have higher than average interest payments than most other bonds and can be suitable for long-range objectives such as retirement or your child's tertiary education.
For large future purchases such as a house, consider bonds that are low risk and mature on the date you anticipate needing the funds. For example, if you want to buy a house in five years, consider bonds that come due in 2010. In that five-year interim, you will still earn interest and grow the money while you wait to make the big purchase.
Bond mutual funds allow you to access the benefits of bonds with a lower starting investment. These funds offer you the additional benefit of diversification by spreading your investment across several types of bonds.
INVESTORS AGED 35-49
During this period of your life your salary has risen and so have your responsibilities. No doubt there are mortgage payments, school fees and other pressures demanding your attention.
Nonetheless, now is the time to focus on growing your wealth. It is not too late to begin looking at bonds even if you did not before.
Bonds can be tailored to meet other medium to long-term financial objectives such as retirement and your children's education.
And if you are ready to look at saving for an investment in real estate or starting a business, bonds can be used as an excellent vehicle to reach those objectives.
STRATEGIES
Consider tax-free bonds. Reducing or eliminating taxes on your investment maximises your return because these types of bonds give greater cash flow.
Purchase hard currency bonds. Eurobonds or global bonds offer an alternative to local dollar investments. Your interest is paid in a foreign currency and is an important hedge against inflation and devaluation.
Government of Jamaica local bonds should also be considered. These bonds are low risk because they are secured by government revenues. This is ideal for investors who are comfortable with a little risk but want steady income at higher rates than a savings account.
INVESTORS AGED 50-64
At this stage your hard work and investing discipline should allow you to look forward to a comfortable retirement. Your focus is on protecting your wealth.
Also your risk tolerance is understandably lower than when you were in your twenties. Nonetheless, experts suggest that your portfolio be 50 per cent or more of bonds. Ideally, bonds should be a large part of your portfolio because they are stable investment and provide a predictable stream of income.
STRATEGIES
Create a bond ladder. Remember that bond prices are affected by interest rates. As interest rates fall, bond prices rise and vice versa. To protect your portfolio, ladder the bond maturities. For example, your portfolio should contain three, five, ten, fifteen-year bonds so that you can take advantage of any interest rate environment.
