How to invest

QUESTION: I am a young male who is interested in investing some money. I currently have a degree in accounting so I have the basic idea of what investing entails. However, I have some funds that I would like to invest but I just can't seem to make up my mind. I think the major issue is the fact that I do not have the practical knowledge and would do well with some guidance. Your advice on the matter would be greatly appreciated.

- Andrew

PFA: The only way to get practical knowledge of investing is to invest. I can well understand the challenges you are facing now considering the state of the markets, your inexperience, and the relationship between investment decision-making and the attitude to money.

You have an advantage many would-be investors do not have: you have knowledge of accounting. You need more than knowledge of accounting, though, to equip yourself to make good investment decisions. You need to convert your knowledge of accounting into the ability to do good financial analysis.

Begin by learning how the financial markets work. Read about the stock market, the foreign exchange market, the money and bond markets, and even the commodities market if you want to get a grasp of the markets. The Internet, newspapers and business magazines are great sources of information.

Do the required research to know what is good and what is suitable for you. Use your accounting training to analyse the performance and strength of companies if you have an interest in ordinary stock, but be skeptical about what you read. Draw your own conclusions from the material that comes before you.

Read about the various investment strategies and, to the extent you are able, associate with trusted persons who share an interest in investing so you can share ideas, develop strategies and get moral support, at least.

Ask questions

Speak to professionals in the financial services sector who know their craft. Ask good questions. Listen for substance. Learn to identify sales talk so you won't be easily led up the wrong path. Avoid being attached to any one person or company at the outset.

Start small. In fact, the unit trust should be a good place to start. It is an expensive way to invest but it offers you much value. It offers you diversification, professional management, liquidity, the ability to invest small sums, and shifts some of the burden of research from you to the investment managers. Make other kinds of investment when you feel comfortable and confident to do so.

You will not be able to invest responsibly and sensibly until you know why you want to invest. You must know your goals and objectives so you can tailor your strategy accordingly. Additionally, you must know when you will need the use of the funds you have invested. Beyond that, you must understand how you feel about money for that will help you to determine your risk tolerance. Many persons misunderstand their level of risk tolerance and many professionals do not seem able to help them make that determination. Some of our local investment houses do make an effort to help their clients in this regard by using questionnaires.

Overcome fear

You won't be able to start investing until you overcome the fear that I see in you. Your fear seems driven by your self-confessed lack of knowledge. But there could be other reasons: fear of wrong timing, of losing, of market fluctuations, or of not being able to access your funds when you need them. Financial education, by helping in the understanding and appreciation of financial markets and instruments, assists in increasing risk appetite and creates the ability and willingness to make bolder decisions.

Financial education by itself will not make any person an investor overnight. The world is littered with many persons who are financially literate but who fail to make investment and financial decisions due to fear, or make poor decisions. A major reason for this is the kind of relationship they have with money.

How you relate to money is determined by your socialisation which comes from several sources including your family, friends, the church, the media, and school. If you have developed the fear of losing money, you will need to overcome it to be able to make the bold decisions required to make money. If you are not prepared to make bold decisions, you cannot reasonably expect to make a lot of money.

Learn all you can about financial and investment matters and about your money personality, then conquer your fears, and make investment decisions that are suitable to you and your particular needs. I wish you success.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of 'The Handbook of Personal Financial Planning', offers free counsel and advice on personal financial planning.Email: finviser.jm@gmail.com.