Should I invest in financial sector or self-sustaining business?

Oran A. Hall, Contributor

I will be 34 years old this April. A single father; my son who lives with me is 13 years old. We live in a family house, so I pay only light and water bills, no cable. I own a 2002 motor car. I have no loans currently. I do a 9-5 job and my monthly income is approximately J$230,000. I automate it so that J$100,000 goes to JMMB, J$10,000 to Sagicor in an investment account, J$30,000 to Guardian Life for my son's college fund, and $15,000 for my life insurance. We live off the J$85,000.

I have around J$2.5 million savings in the JMMB account now. I'll have to check how much is in the others. I am looking to build a house in the next two years. I want to use my NHT and build a Megwall home instead of buying these J$15 million houses I see advertised.

How do I make my current portfolio work harder? I want to be more aggressive with at least J$500,000 of the JMMB funds. Should I buy stock or mutual funds? I was thinking of buying a taxi. Is this wise? I guess my question is, should I invest in the financial sector or start a self-sustaining business?

- Bob

You are a very well-organised young man, and pretty focused too. You have several aspects of your financial plan in place. You did not mention an estate plan or retirement plan. You should put them in place if you have not done so as yet.

I can understand why you are thinking the way you are. You have primarily been a saver; now you want to invest as well. You have the financial capacity to do so, but you need to decide if you have the mental capacity as well so you won't begin to panic if the tide turns.

The main advantage of buying stocks is their ability to give you good returns when market conditions are favourable but you also benefit by not paying tax on your gains. Income tax does not apply until your gains exceed 50 per cent of your total income.

Dividends are also paid gross. But there is a downside - losses when stock prices fall. You are sensible in not planning to put an unreasonably high portion of your funds in the market, directly or indirectly.

Mutual funds, if you have a preference for global markets, or unit trusts, if you have a preference for the local market, offer you the benefit of capital appreciation with ease of management and diversification. The mutual funds offer exchange-rate protection as well but there will not be any dividends. Both mutual funds and unit trusts are quite liquid.

What about the taxi? That is one to be very careful with and I would expect you to do some serious research before taking the plunge. I am sure you have noticed that there are many taxis in town and out of town. Do you believe there is room for more and, if so, where would you operate it?

How much would it cost to operate a taxi? Consider the cost of insurance, maintenance and fuel. Can you find a trusted person to operate it and take immaculate care of it? Think long and hard about this one.

Take your time to decide and bear in mind that there will be good days and bad ones too. It is quite all right to diversify your portfolio, including finding a way to make your capital grow.

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. Send feedback to finviser.jm@gmail.com