Christopher R. Chin Loy, ContributorONE OF the most important things that must be considered when you make that transition from 'saving' to 'investing' and developing your own personal portfolio, is a basic understanding of the various investment opportunities available.
These range from your simple repo or repurchase agreement instruments which are akin to what we are accustomed to as normal deposit mechan-isms, but actually backed by the government, to equities, which is essentially ownership in publicly-listed companies and international bonds which are long-term borrowing instruments from governments issued globally. A basic understanding of these simple instruments will go a long way in enabling an investor in developing his or her own personal investment portfolio.
FINANCIAL ADVISER
However, I am not endorsing the exclusion of a financial adviser from your portfolio determination.
Advisers do serve some other purpose besides the simple execution of the trade for investors. Armed with your basic understanding of the various markets, coupled with your financial adviser's training, experience and, most importantly, their research, an investor can develop a credible and profitable investment portfolio.
So, where do you start? Begin with the basic understanding of the varying asset classes, a few examples of which are fixed income, stocks and equities and real estate. Once this differentiation is firmly grasped, the obvious next step is your individual risk assessment.
For example, during a bull market, a client may feel as if his or her risk aversion level is low (meaning a high tolerance for risk), due to the exuberance associated with such a market condition, however, as soon as there is a negative turn, we usually discover a different investor, one with a sudden distaste for risk.
This is the main reason why investors must treat their financial advisers as they would their doctor for example, so that a healthy diagnosis of risk, current wealth, and goals can be ascertained correctly. Once a correct and honest determination of risk is made, the next step is to develop a properly balanced portfolio for the corresponding risk level.
Here is where having a basic understanding of the various asset classes and their risk positioning is helpful, so as to identify how best to structure your portfolio along with your financial adviser's guidance and research.
ASSET CLASSES VERSUS RISK
This is the most significant basis upon which you should develop your own personal portfolio. Research can, of course, be conducted by the individual investor based on the information provided by
The listed companies themselves
Rating agencies
Government agencies
Various analysts' reports.
Now, put this into perspective. Here in Jamaica we have 39 listed companies, the Government of Jamaica alone has eight different international EuroBond issues, and numerous different COSH instruments from which you can choose a desired tenure for your repo.
PROFESSIONAL ADVICE
Faced with this enormous amount of data to consume in order to invest your wealth wisely, it seems wiser to ask a professional to feed you these data based on your risk profile and desired asset mix.
If you decide you want to try and do this yourself, you may also want to consider a shift in occupations, since research data are continuous and you may as well get paid for compiling and analysing all of this data.
A serious investor who chooses to have an analyst do this groundwork for him or her, and wisely so, would still benefit greatly from having a better than basic knowledge of the data available, and some of the analytical measures used by financial advisers in determining the best of class within each asset category in the building of their portfolio.
Christopher Chin Loy is an account executive at Mayberry Investments Limited.
