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New Year Resolution: Dos & Don’ts for Investing How to MANAGE RISK Like a Boss
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C O N T E N T S
New Year Resolution: Dos & Don’ts for Investing
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The role of risk management in investment management
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Market Update and Economic Overview
Click here to see our Stock Picks as at December 28, 2021
Phillip Broderick Wealth Officer MEET THE TEAM
Phillip Broderick is a skilled Wealth Advisor who is proficient in developing effective financial plans to meet the financial objectives of his clients. Phillip has his Bachelor of Science Degree in Finance and Banking from the University of Technology, Jamaica and is certified in Securities and Portfolio Management.
Term to Know
Blue Chip A high-quality, relatively low-risk investment; the term usually refers to stocks of large, well-established companies that have performed well over a long period.
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New Year Resolution:
Dos & Don’ts for Investing 4
he dawn of the new year brings new opportunities for us to achieve personal and financial goals. One such financial goal may include starting or expanding one’s investment portfolio. Investment is sometimes viewed as ‘complicated’ but with the help of a financial/wealth advisor and the tips below, the process of investing is expected to be much smoother.
Dos:
1. Utilize the service of a trained and certified financial/wealth advisor – The advisor will provide you with up-to-date market information as well as solid forecasts that will benefit your investment strategy. The advisor will advise you on the types and levels of risk to take, as well as the amount of money to invest. Regular check-ins with an advisor are a key benefit, as they allow you to re-evaluate your current situation and future goals, as well as develop appropriate strategies going forward. 2. Outline your specific goals and timelines – Whether you’re investing to increase your wealth, increase your savings, or plan for retirement, it’s critical to have a clear aim in mind. Your investment goals, as well as the desired timeline, will guide your appetite and exposure to risk. 3. Educate yourself on the market – Without adequate research or background information on a stock or a company, there is a low likelihood of gaining returns on your investment. Therefore, it is recommended that you examine a company’s financial statements and management structure to aid you in determining whether it is a worthwhile investment.
4. Diversify your investment portfolio – As the old proverb goes “diversity is the spice of life”, the same concept should apply to your investment portfolio. Diversification aids to reduce risks and increase returns through investing in a variety of areas and instruments that may react differently to shocks within the market.
Don’ts:
1. Be impatient – Patience is a virtue when investing in the stock market. Being patient with your investment means that after deciding on your portfolio of investments, you should not be perturbed by short-term price fluctuations or minimal growth. Instead, it is advised that you stick with your investments for the long haul and watch your investments grow. 2. Over invest/spend – Overinvesting is the action of investing too much money in a short period of time. Investing too much money in stocks can be risky, as market crashes are unavoidable and can occur at any time. Recovery is also unavoidable, but it can take some time. 3. Make emotional investments – It is normal for many investors to panic whenever stock markets decline, however do not be too quick to pull out your investments because the market can rebound as quickly as it plummeted. On the other hand, do not become too attached to a stock that has been consistently underperforming because it can destroy your earning capacity. 4. Delay investing – When you factor in inflation, you can’t afford to waste money on procrastination. Investing now gives you the opportunity to earn compound interest over a period of time, which would be forfeited by postponing.
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How to manage risk
like a boss
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o you know your risk appetite? When planning to invest, do you throw caution to the winds in pursuit of the best rewards or do you sit and plan and calculate to reduce the potential for loss as much as possible? If, like most of us, you’re somewhere in between – attracted to attractive returns, but prefer a manageable amount of risk. That ‘manageable’ is where the art and science of risk management meet. When it comes to managing risk, here are a few tips to help strike a balance between optimal returns and loss potential you can live with. Diversify. This word might be overused, and for good reason. Spreading your funds across a range of of asset classes, across different continents or currencies means any negative changes in one market will likely be offset by gains or stability in the others. Just take care to avoid ‘overlap’, as asset classes like a unit trust and an equity portfolio can seem different but still be invested in similar stocks. Over time, make periodic assessments of your portfolio’s performance and rebalance your allocation of assets as needed. Keep an eye on your portfolio’s volatility. Stocks are the rockstars of investment. They get great PR and have the potential to generate exponential returns. However, they also have the potential for losses
of similar magnitude. So adding bonds is one way to add stability to a portfolio including equities. The beta coefficient measures how closely an investment tracks with the market. High beta investments that track very closely are effectively balanced with low beta instruments that are less responsive to short-term market changes. Set a maximum loss. You should always have an exit plan when you get in on an investment. One way to do that is to predetermine a limit for the losses you’ll accept before calling it quits. Another way is to decide on an upper limit for cashing out the gains. These limits should be calculated based on the percentage of your investment you can afford to lose and guided by your risk appetite. An objective approach to deciding when to exit helps investors avoid the pitfalls of emotional decision-making that can be caused by short-term fluctuations in the market. Margin of safety. A margin of safety is a useful tool to take emotions out of deciding on an entry point for an investment. A 20% margin of safety, for example, means you’ll only buy a stock if the price falls to 80% of what it’s true value is determined to be. For less predictable investments, a greater margin of safety is best, while a smaller margin can work for instruments with greater stability. For investors, risk and reward go hand in hand. Any investor interested in making money will need to get comfortable with risk and navigate that delicate relationship between the attractive returns they want and the amount of risk they’re able to handle. Successful investors are able to make decisions independent of the emotions that are only natural in the face of possible losses. They understand that risk side of the equation needs as much, if not more, attention as the reward side. As an investor, make a habit of giving risk the priority it deserves and you will be well on your way to making a habit of success.
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WEALTH TALKS: WEALTH GUIDE TO 2022 This webinar was held on Wednesday, December 29, 2021. Learn from Mindset & Leadership Coach Nadine Seaga how to get your vision boards in place to achieve your goals and get expert guidance from Wealth Advisor Trace Gayle on how to fulfill your financial goals for 2022. Click here to see the full recording
Market Update and Economic Overiew November 2021
Fixed Income For a second consecutive month, the Government of Jamaica (GOJ) re-tapped several bonds in a bid to raise money to finance its fiscal operations. The GOJ re-opened its 4.50% 2025, 5.675% 2029 and 10.00% 2037 fixed rate bonds on November 26, 2021, at a total offer valued at $4 billion, $1 billion, and $5 billion, respectively. All the offers were oversubscribed by 1.19, 2.73 and 1.35 times their offers, once again highlighting the presence of excess liquidity in the JMD money market. Read the full report
Money Market The BOJ implemented a further rate hike of 50 basis points, which saw the overnight policy rate increasing to 2.00%. The next rate consideration is scheduled for December 20, 2021, and the International Monetary Fund (IMF) has advised that further increases may be necessary, given that real interest rates remain negative, even after the increases. Read the full report
Equities The Jamaica Stock Exchange’s (JSE) Main Market index advanced 1.54% during the month of November from trading 64 stocks of which, 21 advanced, 37 declined and 6 traded firm. Wigton Windfarm Limited Ordinary Shares (WIG) was the volume leader with over 38 million units, followed by TransJamaican Highway Limited (TJH) with over 34 million units and Mayberry Investments Limited (MIL) with over 29 million units. Read the full report
Foreign Exchange According to the Bank of Jamaica’s (BOJ) Weighted Average Selling Rate (WASR), the JMD lost $1.01 (0.65%) against the US dollar in November, ending the month at $156.67. Despite limited availability, demand for the US dollar remained strong. In November, the BOJ utilized its foreign exchange intervention and trading instrument (B-FXITT) to inject US $50 million into the market over two days. Read the full report 9