Oran A. Hall | Will last year’s priorities carry over to 2020?

The three main priorities of the readers of this column in 2019 were investing in the stock market, accessing National Housing Trust (NHT) benefits to own a home and getting out of debt. In an interesting way, there seems to be a link between them: low interest rates.

It is not that the landscape changed much in 2019. The stock market has been having a good run and the period of high interest rates is in the past. Notably, the shift of funds to the stock market did not come immediately after interest rates started to decline. Low inflation notwithstanding, the returns on interest-bearing securities have caused investors to be drawn to ­higher-yielding options.

The continuing steady flow of initial ­public offerings (IPOs) and the ­marketing and advertising blitz which have ­accompanied them, plus continuing public investment education efforts have made more people aware of the benefits of investing in the stock market. The IPOs have brought many new investors to the market, and the returns to investors have encouraged them to ­support the market, thus helping it to continue on its upward trajectory.

What the questions from readers in 2019 clearly exposed was the limited knowledge many still have of stocks and of investing in the stock market. Jamaicans resident here and abroad wanted to know how to invest in the stock market.

What is clear is that more people are becoming aware of the need to own a wider range of assets. Cash in the bank and a house, though good, are not enough is the message it seems many have been sending. And they are right. The growing interest in the stock market, particularly among younger people, is positive.

And there are other options. Unit trusts have established themselves well and are giving investors another option, with great scope for diversification, ease of management and participation by individuals with limited financial resources. I see immense scope for their continued growth. Not very long ago, there was one with just three funds. What an explosion we have witnessed in recent years!

Lower mortgage rates have made the dream of owning a home more realistic for many people, and many of them are banking on the NHT to help them realise their dream. Yet, it is a challenge for many aspiring homeowners. They still have to meet the ability-to-pay requirements and, when buying on the open market, be able to source the deposit and the closing costs. So prospective homeowners have shown interest in using the benefits of family members and contributors not related to them by blood to assist them at a time when the prices of houses have not stayed down, and some have used a more straightforward joint ownership approach in which the parties have a genuine beneficial interest, but it is still a challenge to many.

Debt has been the bane of many who have sought advice through the column, not just credit card debt with its high interest rates, but much cheaper debt from the financial institutions. Many have detailed how the pressures of debt have affected their physical and mental health. Some readers acknowledged incurring debt for others who then left them in its tight embrace. Others just ignored it, then found it did not go away and had ballooned beyond their wildest dreams.

Interest rates have fallen and the cost of borrowing has fallen, and it has become easier to borrow, it seems. But debts must be paid and financial institutions will do all they can to collect. This is true of all debts, including credit card debt, which so many assume readily without giving thought to how it will be paid.

This year, more opportunities will no doubt come in the stock market, but investors should be careful to make informed decisions by doing the necessary research and avoiding the temptation to follow the herd. The NHT has facilities which should be carefully explored. Its website and staff are able to provide good and relevant information. Use them. As for debt, borrow sensibly. Think twice before becoming entangled and do not hide from the lender if a problem arises. Find a way to engage.

Beyond this, this could be the year for the self-employed to make solid plans for retirement. Explore the Approved Retirement Scheme, offered under several names by some financial institutions. Begin to stash something away for the day when life will change dramatically. Perhaps, as well, employers could look more favourably at providing retirement benefits for their employees, and can the Tourism Workers Pension Scheme serve as the template for other pension arrangements? I wonder if the trade unions see a role for themselves here!

While it makes sense to capitalise on sound investment opportunities and to find ways to own a home, playing loose with debt cannot be the way to go this year. Have a healthy and successful 2020.

Oran A. Hall, the principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel. Email finviser.jm@gmail.com