Sushil Jain, Contributor 
Jain
THE TWO principal
reasons why people invest are to preserve the
power of the capital they invest as well as to increase the value of their capital.
In other words, an investor wants to know that the sums he or she invests today will be able to purchase the same goods or services in the future and possibly more. So, if you can purchase a home for one million dollars today, you want to know that if you invest a million dollars, you will be able to purchase a similar home 20 years later and maybe even buy a second home out of that money you had invested.
In order to preserve your money's purchasing power and to see your money grow, you cannot invest in a single asset class, industry, market or geographical region. You must develop a properly diversified portfolio across various categories.
INVESTMENT OBJECTIVES
There is no 100 per cent, risk-proof method of investing, but the more widely you are diversified, the better your chances of achieving your investment objectives. The reason for this is quite simple. No two asset classes or industries or markets in the various geographical locations are likely to perform exactly the same way at the same time. It is well known and documented that when fixed income interest rates are up, investments in equities are likely to be down. Reduced performance of stocks as a whole may be offset by gains in investments in real estate. And, the results of the equities market in Jamaica may not necessarily be the same as those in New York, Toronto or Bombay (now known as Mumbai), for example.
Say in Jamaica you already own a home, you have shares in ten listed companies and you have some certificates of deposit at one of the commercial banks, are you adequately diversified? The answer is no. You are not sufficiently diversified if all your investments are in one country. You need to do the research to learn which countries are likely to have a higher rates of economic growth and offer the variety of financial products that may assist you to reach your investment objectives. Timely information is key to any investment strategy.
Besides diversifying into foreign denominated equities and bonds, there is a range of other investment products available outside of Jamaica such as Real Estate Investment trusts (REITs), commodities, options, Exchange Traded Funds (ETFs), American Depository Receipts (ADRs) and capital protected funds. But, you have got to do the research. Study the countries and study the products. The Internet is by far the most effective source. There are also magazines, newspapers and financial newsletters. Then, of course, there is your broker or investment advisor who will do the research and give advice. But the investment decisions should be made by you based on your own forecast of the prospects of different investment options.
In fact, a good way in which to become globally diversified is to buy shares in a global mutual fund. There you will benefit from the experience and investment know-how of professional fund managers who will do the research and make appropriate changes to the portfolio of investments from time to time.
Brazil, Russia, India, China, Asia, Latin America and Eastern Europe are among the countries and regions of greatest international investment attention today
Whether you are diversified or not, you will have to overcome several risks or hazards along the way. The value of your assets could go down because of factors such as inflation, devaluation, reduced demand, global economic and political forces and natural hazards. A globally diversified portfolio minimises, if not prevents, the probable losses from such risks.
The world economy is going through a period of unprecedented growth. Several countries and regions, such as those I mentioned earlier, are experiencing high levels of growth. Commodity prices are rising because of higher demand. Despite the threats of high oil prices and terrorism, the outlook for global growth is bright. There are many investment opportunities worldwide. Investors should explore the possibility of taking advantage of these opportunities.
Sushil Jain is Treasurer and Corporate Secretary at the Seprod Group of Companies. The above was based on a presentation of the same title to Mayberry's Monthly Investor Forum held in New Kingston on April 19, 2006.
(Taken from the Financial Gleaner Friday May 12, 2006)
