J$5m in the bank: You need a structured investment programme

Oran A. Hall, Contributor

QUESTION: I have J$5 million just sitting down in the bank in Jamaica. How would you suggest I invest this money? I am a moderate risk-taker and believe strongly in the power of compounding.

- Cecil

PFA: From your previous contacts with me through this column, it seems that you have a pretty sizeable portfolio and that you love to have your money "just sitting in the bank in Jamaica". You need a qualified financial planner to work with you to manage your financial affairs.

The approach of trying to determine what to do with individual sums of money without considering their place in the total portfolio is not very prudent or productive.

Every person who has an investment portfolio must consider how the whole portfolio is to be treated.

Dealing with portfolio management on a piecemeal basis is not very likely to yield the results required to meet the desired goals.

To build a portfolio to address all of your needs requires that you lay out your full financial resources and situation before a trusted adviser who will help you structure a plan that is suitable to you. In your particular case, you are living outside Jamaica, and I doubt that you have invested all of your funds here. I would expect your adviser to determine what portion of your funds to invest in the various markets of the world, and what portion to invest in particular asset classes and instruments.

I doubt that any programme recommended would include money "sitting down in the bank" doing very little for you. A good adviser would be happy to determine an appropriate asset mix and strategy for you.

From this distance, I am reluctant to suggest how you should invest this sum of money considering that there is so much I do not know about what you are about. The advice I give is general in nature and is not meant to release any individual from taking responsibility for consulting a qualified professional.

I am a little bit nervous about persons declaring what their risk profile is. So often, the strategy they declare that they are prepared to employ in the management of their portfolio runs counter to what would be expected of a person with that declared risk profile.

There are mechanisms in place, particularly where you are, to determine risk profile and the appropriate investment strategy. Some, I admit, are not very reliable, and how accurate they are depends on how the questions are structured. But not even this approach is foolproof. Even with the best intentions in the world, the portfolio recommended may not deliver the expected results; so much can change in the market and so much can go wrong with particular selections.

The situation is made worse when an adviser is making recommendations to an individual who has not shared his/her full portfolio. Further, an adviser may want to know your attitude to particular asset classes and instruments.

Investment strategy

If you, for whatever reason, have no desire to invest in these, no professional is likely to push you to go against your feelings, although an attempt may be made to understand why you have such attitudes and steps taken to help you understand the value and the relevance of them to your situation.

If you are in a position where funds are flowing to you regularly, have a strategy in place for moving them into instruments that yield higher than what the bank pays.

I am assuming that your money in the bank is earning something for you. That you have declared that you believe strongly in the power of compounding suggests that you love to earn interest income. That being the case, you cannot afford to have your money not working all the time. Hasten to put an appropriate investment programme in place.

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