Many persons usually view their bonus as the extra spending money and it can be blown with a few days of shopping.

However, wealth experts agree that bonuses should be seen as additional savings and invested in order to gain high returns for the new year. A bonus is not a regular part of your income; it is a payment for your creativity and you should be creative about how you use it.

There is nothing wrong with spending some of your bonus on yourself. After all, it is a reward. However, like your income, a part must be put aside to continue earning on that reward for you.

A good place to put your bonus is towards an emergency fund. It will seem as if you are not using it for much, when if you should put this money aside at the end of the year for unforeseen tragedies in the new year, you can rest assured that you can cover your expenses.

Another investment option is a fixed deposit account. A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings account.

You can also use your bonus to reach a big goal that seemed distant before. Such goals as continuing your education, buying furniture, paying deposit on a car, clearing up a few debts, and so on, are great ways of using your extra money.

A retirement savings plan is another option. It does not matter how young you are, it is never too early to start planning for retirement. Visit a few banks and investment institutions and compare different investment schemes. The earlier you start to save, the earlier you can reach your goal of retiring a few years sooner.

Of course, your extra money should be diversified and invested for the long term as a bonus this year does not guarantee one next year.

So what are mutual funds? Simply put, a mutual fund is an investment that pools money from many investors which is then invested in various securities. Guided by the objectives of the fund, the investment professionals who manage the fund make asset allocation decisions to ensure optimum performance. Gains made by the fund are then reinvested or passed on to shareholders/unit holders by way of distributions on a prorated basis.

So, does investing in mutual funds make sense? Yes, it does. Mutual funds provide investors with a wide range of benefits and advantages. Chief among these are:

• Immediate diversification for their investment dollar – Diversification is very important for any portfolio as it helps to minimize one’s risk exposure. Mutual funds provide investors with broad exposure to global stock markets, bond markets and money markets. In addition to being diversified by asset class, mutual funds are also diversified by geographic and economic sectors, by market capitalization, as well as by the investment style of the fund’s manager or managers.
• Increased buying power and economies of scale – Some investments have minimum entry requirements (i.e. a minimum investment amount) which all investors may not be able to satisfy. However, mutual funds allow ordinary investors to stretch their investment dollar further as the minimum investment required is relatively low. Additionally, there is an opportunity to invest in higher yielding securities globally, and fund mangers are able to execute trades on the largest and most cost-effective scale.
• Active and professional management – Mutual funds are managed by experienced investment professionals whose full-time job is to ensure that the respective funds provide maximum returns for investors. These fund managers have instantaneous access to crucial market information which allows them to make key decisions quickly, like locking in capital gains during bull runs (upward swings in the market) and taking defensive actions during market downturns.
• Greater choice, convenience and flexibility – Investors differ in terms of their appetite for risk and investment objectives. Similarly, mutual funds differ according to their risk and return levels and objectives. Therefore, an investor is very likely to find a mutual fund that will satisfy his or her particular investment needs. Some mutual funds are geared specifically towards high capital appreciation (growth funds) while others are focused on capital preservation and/or generation of income (income funds). Balanced funds combine both growth and income objectives.

It is very important to note that with mutual funds; past performance does not guarantee future performance. However, as outlined above, an investment of this nature does make sense as there are a host of benefits that investors can be assured of.

For additional information and advice on mutual funds or other investments that may be right for you, speak to your investment adviser today.

Historically, dividends have accounted for more than 40% of the stock market’s returns. They represent real cash in your pocket now. More than that, dividend-paying companies are among the most stable and least volatile companies on the market. The constant need to pay cash, means these companies are consistently profitable, and have management teams that are capable of keeping them that way.

What to do? Invest in stocks for companies that have consistently paid dividends (over a period of years).

“I want to grow my money but I don’t want to take any risk.”

“I am very new to investing and I don’t know where to get started.”

“I simply do not have the time to track my investments. Do you have something or someone to do this for me?”

“I have been a procrastinator for as far back as I can remember, and the problem is that I am very close to retirement, and have done very little to plan for it. Am I doomed, or is there something I can do right now?”

Upon hearing these concerns, I usually attempt to assure my clients that the past is just that – the past. Absolutely nothing can be done about it! But, as one popular televangelist, Paula White, often says, “You cannot conquer what you do not confront.” Once you have acknowledged your situation, the most crucial thing is to get started – RIGHT AWAY! Borrowing from another one of my favourite quotations, “Procrastination is the grave in which opportunity is buried.” The great news is that there is another investment option available to Jamaican investors, young and mature, sophisticated and unsophisticated: mutual funds.

What is a Mutual Fund? A mutual fund is a company that pools the money of many investors to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro-rata share of the portfolio – entitled to any profits when the securities are sold, but subject to any losses in value as well.

Why Mutual Funds? While mutual funds have been around since the 1920’s, their popularity has soared in the past twenty-five years. Naturally, some investors are curious to find out what exactly mutual funds can do for them. Essentially, there are several advantages:
1. Ease of Investment: Mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation.
2. Diversification: Mutual funds bring diversification so that you can diversify your dollars over many different securities and currencies that may not be available or affordable to you otherwise.
3. Professional Management: Mutual funds provide the benefit of having someone else manage your investments and take care of record keeping for your account.
4. Convenience & Flexibility: You own just one security rather than many, yet enjoy the benefits of a diversified portfolio and a wide range of services.
5. Quick, Personalized Service: Most funds now offer extensive websites with a host of shareholder services for immediate access to information about your fund account. A phone call puts you in touch with a trained investment specialist at a mutual fund company who can provide information you can use to make your own investment choices, assist you with buying and selling your fund shares, and answer questions about your account status.

What are some of the risks? Before you can begin to build a successful investment portfolio, you should understand the basic elements of mutual fund investing and how they can affect the potential value of your investments over the years.

When you invest in mutual funds, there is no guarantee that you will end up with more money when you withdraw your investment than you put in to begin with – and that’s a scary prospect. Loss of value in your investment is what is considered a risk in investing. Even so, the opportunity for investment growth that is possible through investments in mutual funds far exceeds that concern for most investors. Consider why. At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Or stated another way, you get what you pay for and you get paid a higher return only when you’re willing to accept more volatility.

Risk then, refers to the volatility – the up and down activity in the markets and individual issues that occur constantly over time. This volatility can be caused by a number of factors – interest rate changes, inflation or general economic conditions. It is this variability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock or bond we invest in will fall substantially. But it is this very volatility in stocks, bonds and their markets that is the exact reason that you can expect to earn a higher long-term return from these investments than you can from certificates of deposit and passbook savings accounts.

Different types of mutual funds have different levels of volatility or potential price change, and those with greater chance of losing value are also the funds that can produce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns.

You might find it helpful to remember that all financial investments will fluctuate. There are very few perfectly safe havens and those simply don’t pay enough to beat inflation over the long run. The important thing to remember when investing in mutual funds is to have a long-term view for the funds you invest in this type of investment. That way you can ignore or worry less about the short-term fluctuations.

What is the Prospectus? The prospectus describes the fund’s objectives, history, manager background and financial statements. In short, it is the document that makes investors aware of the risks of the investment.

How do you get started?
1. Contact the fund company directly by visiting its website or by calling them to request a prospectus and information kit for the fund or funds you are interested in. You’ll receive an application form with complete instructions on how to invest and redeem shares, as well as how to use other services offered by the fund company.
2. Read the prospectus carefully before you invest. It’s important that you understand how the fund operates and how its policies, fees or philosophies might affect your investment over time.

Happy investing!
From your friendly financial advisor

However, with interest rates declining, the current business environment favors equity investments. This will prove beneficial to the growth of entrepreneurship and the long-term development of our economy. The stock market is a powerful wealth generating vehicle, though sometimes misunderstood. It is on this note that I will seek to clarify some of the misconceptions associated with investing in the stock market and provide a better understanding on how these securities work.

Misconception 1: Investing in Stocks is just like gambling
The Stock market provides an effective means of raising capital for companies seeking to expand and contribute to the long-term growth of the local economy. While some investors may speculate on stock price movements, the majority of equity transactions are based on a structured research process in which key considerations about the profitability and growth prospects of the company are analyzed.

Misconception 2: The Stock Market is an exclusive club in which Brokers and rich people make money
The Stock market allows small investors to participate with minimum trades, and the trading volume of a small investor makes it easier for their purchases or sales to be executed. Furthermore, unlike the fixed income market, the rate of return is not directly linked to the amount of money invested. All shareholders receive the same amount of dividends per share and have the opportunity to trade at the same prices.

Misconception 3: Experienced investors do not need advice from their Broker
Equity investments are more sensitive to new information than other types of securities. Investors therefore tend to rely heavily on their Broker’s analysis, recommendations and any other relevant information concerning listed companies on the Stock Market. In a rapidly changing financial market, Brokers will have greater access to information such as volume and prices of orders awaiting execution, which is not generally available to the public.

Misconception 4: Relative valuation (buying stocks with low price to Earning Ratios) is the foolproof method of identifying good investments
Empirical analysis has shown that this strategy typically generates above average stock returns in the long run. However, some companies consistently trade below or above industry averages due to specific factors such as management quality or brand loyalty influencing performance of the organization. Historical ratios may be more relevant if the company has not experienced a significant change in its operations or growth potential. In many cases, consistency is more important than the actual numbers generated by the ratio analyses.

Misconception 5: Strong trends will persist
Market psychology is affected dramatically when the price of a stock moves strongly in a particular direction. Some investors may blindly follow the trend as they fear missing out on opportunities or realizing substantial decline in the value of their portfolio (as in the case of a decline). Most investors later regret the decision to buy or sell based on these trends. This is especially true in the case where an investor buys a stock after a price run to new or recent highs, only to see the value of the stock slide shortly after the market corrects itself. An analysis of the volumes traded is imperative, as the entrance of a large buyer may cause prices to spike, and their subsequent exit results in the retracement of prices to normal levels. Advice from your broker is especially important in these situations.

As economies evolve, equity investments are expected to take a more dominant role in capital markets. Before you invest in the Stock Market, you should define your investment objectives, understand the risk involved and seek professional advice.

Some investors are scared because of the potential to lose their principal. However, mutual funds must be purchased in a portfolio context. Your advisor will assess your financial goals, risk tolerance, time frame and costs associated with the fund thereby assisting you in making the correct decision.
• There are Mutual Funds, such as Money market Mutual Funds that are very conservative and will preserve your principal. Good mutual fund advice.

• For those who have higher risk appetites, there are many growth funds that will fulfill their needs.

• For those who would like to gain exposure to specific assets, whether on gold, oil, emerging markets or even specific sectors (such as the health sector), there are Mutual Funds just for you.

Benefits of Mutual Funds

Professional Management – Mutual Funds are a relatively inexpensive way for the average investor to benefit from the expertise and insights of some of the world’s best money managers.
Diversification – Mutual Funds invest in a broad range of securities and asset classes which reduces volatility and risk through diversification.
Economies of Scale – The volumes involved in mutual fund transactions lead to costs lower than what you would pay for an individual transaction.
Liquidity – Investors can easily sell their units at anytime (usually subject to an initial minimum holding period).
Simplicity – You get the benefits of a diversified portfolio with just one purchase.

Risk of Mutual Funds

Interest Rate Risk – This is the risk that bond prices will decrease in value when interest rates or yields increase.
Market Risk – Since the prices of securities held in the Fund fluctuate in the market, the NAVPS (Net Asset Value Per Share, i.e. the price per share) could fall or rise.
Credit Risk – This is the possibility of an issuer of a security held in the Fund defaulting on its obligations under that security and not repaying its obligations on time or at all.
Foreign Exchange Risk – When the Fund buys an investment that is denominated in a currency other than US dollars, changes in the exchange rate between that currency and the US dollar will affect the value of the Fund.
Political Risk – The value of the assets of the Fund may be affected by uncertainties such as international political developments, changes in government policies and taxation.

Why Now is a Good Time to Invest

Major world economies are recovering, market rates are trading at historical lows. The best mutual fund advice we can offer is that there’s NO TIME LIKE THE PRESENT. Investing in Mutual Funds is a great opportunity to diversify one’s portfolio. While historical returns are not predictors of future returns, it is a good starting point in the selection process with your mutual fund advisor. When choosing a Mutual Fund to invest in, make sure you do your homework and evaluate the positives and negatives in order to make sure the fund is right for you.

Your investment advisor can guide you to long term wealth creation, but the operative word is guide. They are simply a resource tool to help you reach where you want to go – to help you set realistic investment goals. Lets take a look at some of the questions investors should think about when deciding how to invest their funds – with the help of their financial advisor.

Investment Policy Statement

1. What are the real risks involved, especially in the short run?

2. What are the most likely emotional responses I will have if my investment loses value?

3. How knowledgeable am I about investments and the markets in general?

4. What other capital or income sources do I have?

5. How important is this particular investment to my overall financial position?

6. What, if any, legal or regulatory restrictions affect my investment needs?

7. What, if any, unanticipated fluctuations in portfolio value might affect my overall investment goals?

When you have the answer to these questions (preferably written down and filed with your investment advisor), the next step is to identify the investments that are right for your circumstances. Constructing an investment policy statement is part of the overall portfolio management process.

Step 1:
Create Investment policy Statement
Focus: Short term needs
Long term needs
Knowledge about investing
Expectations

Step 2:
Examine current and projected financial, economical, political and social conditions that will affect investments. (Your financial advisors’ research department can help you with this.)

Step 3:
Implement the plan by constructing the portfolio by meeting your needs with the minimum risk levels.

Step 4:
Monitor and update as the investor needs and environmental conditions dictate.

Remember, financial planning is a partnership between you and your financial advisor, with the ultimate responsibility in your hands. Are you serious about setting realistic investment goals?

Get Started…

Convincing children to do anything is challenging, much less convincing them to do so regularly. Developing a saving habit may be difficult for children because they may not understand why there is a need to save since their parents take care of all their needs. Here’s an approach to think about. Just as you save for big ticket items, help your children to set and achieve savings goals. You could make a deal with them for special “nice to have” purchases – for every portion they save, you will match it. That encourages saving and regularity!

Then, Find the Money to Save…

You may be thinking where do children get money to save? Well, as it turns out there are lots of sources. First, cash gifts for birthdays or special occasions can be saved in whole or in part. Second, encourage them to save some of their allowance and lunch money. Perhaps you can tie increases to their ability to demonstrate disciplined savings! Third, other than standard chores, maybe you can offer to pay them for special tasks and then encourage them to save all or part of those earnings. Think creatively, apply some discipline, and your children will easily develop the saving habit.

And Now, Decide Where to Save…

A “piggy bank” is always a good starting place because it develops the habit of putting money aside. Experts say use a clear glass jar so children can see the money “growing” with every “deposit”.

The real benefit to your children will come when they begin to understand the power of compound interest, which is what you can get from a savings account. Don’t forget also that long term saving is rewarded; therefore, it is good to start as early as possible.

Firstly, are you prepared to take the risk of investing? If not, you might feel happier with the interest you get from a savings account.

Secondly, remember that investment is a long-term plan. If the stock market crashes, you might have to wait some time before you get your money back or make a profit.

Ways to Invest
There are several ways to invest your money. Here are some of the most popular.

Stocks and Shares
By putting your money into shares, you’re giving companies your money to help them run their business. In return, if they are successful and their share price goes up, you will benefit from the rise in value. Equally, if the company’s value falls, you’ll be losing money. Right now, we’re in a very unstable corporate environment and many companies have lost value. Be careful investing unless you have received good advice!

Unit Trust and Investment Trusts
You can see with shares, putting your money into one company can be quite dangerous. To combat this, Trusts do three important things:

First, they put your money into several companies at once. That way, you’re spreading your risk across the fortunes of many companies: some might lose money, but some will rise in value.

Secondly, a Trust contains not just your money, but many other people’s too. You’re joining a whole bunch of people all committing their cash. Together you have more buying power to spread your risk across companies, and this larger pot of cash usually gets the Trust a better deal.

Finally, your funds will be looked after by a Fund Manager. It’s a Fund Manager’s job to spend time looking for the best place for your cash – day in day out – which means you need to know much less about the stock market than if you were investing privately.

Bonds
These are a particularly safe investment; in fact, you know exactly how much you’ll get back before you even buy them. Bonds are a loan from you to somebody else 9usually the government), for a set length of time, usually between three months and five years. But, because there’s no risk, they don’t pay back particularly well.

Property
Buying and selling property can be lucrative, especially since in many areas property prices have risen dramatically. You will need a lot of money to start with, and if the value of your property falls, you stand to lose a serious amount of money.

Other Goods
There’s a market for most things people want – antiques and collectibles, land, fine wine, etc. But you must understand that buying goods as an investment isn’t the same as picking up a bargain and selling it at a profit. Bargains are rare, and usually rely on the seller being stupid. The value in investing is picking goods to buy which grow in value by themselves, because demand for them grows over time.

Getting Help
Don’t jump into investment without getting good advice from someone who knows their stuff. Get help if you need it. The do-it-yourself approach may not be suitable for everyone. If you try it and its not working, or you’re afraid to try it at all, then you should seek professional assistance.

Your first port of call is an Independent Financial Adviser. They are qualified to give you entirely impartial advice about your finances, and recommend a course of action.

Arm yourself with knowledge. Always do your homework. Understanding financial matters and those that could affect you. Understand your current investments and the risks associated with them. Be cautious when evaluating the advice of anyone with a vested interested.

If you are going to invest in stocks, research companies until you understand them. Remember investment does involve some amount of risk, so choose carefully and make sure you have done your research.

Now, assuming that you sorted out your insurance and cash reserves requirements – which are really the basics of financial plan, we can begin the discussion of investing to maximize your return and minimize your risk. And let us say right here that it is best to speak to a licensed financial adviser to help you determine your return and risk requirement.

Where you are in the life cycle, determines where you are best served by your financial adviser. Typically, younger persons can invest more aggressively so that they can grow their funds to meet their needs. But what if you are uncomfortable with risk? Then no matter your age, you will look to more conservative investment options. For those in retirement, years of savings can be wiped out by poor investment decisions or in the case of global meltdown, actions that you have no control of.

That is why, a complete financial plan is important. But prior to getting there, it is important to have an understanding of where you are in your life.

Accumulation Phase
The ages of 25 to 35 are considered the typical accumulation phase. Now some of us are late bloomers and so don’t really start to get serious until the big 4-0. That said, during this phase, it is characterized by the following constraints:

• Early to middle years of working careers
• Net worth is typically small
• Debt is typically large (courtesy of student loans, car loans, etc.)
• Long investment horizon
• Focus on accumulating assets to satisfy immediate needs (deposit for house, children’s education, etc.)

Consolidation Phase
They say that life begins at 40 and so does the consolidation phase. Actually, financial experts consider this phase to actually begin at 45 and are characterized by the following:

• Past the mid point of their working careers
• Have paid off much of their outstanding car and student loan debts
• Mortgage is main debt burden
• Balancing children’s education with retirement planning
• Income typically exceeds expenses
• Investment horizon is still long with 20 to 30 years before retirement

Spending/Gifting Phase
These days, retirement from one career might be the beginning of a whole new career. The traditional view of retirement where by you are simply sitting around and doing nothing is a thing of the past. Nevertheless, there are some characteristics that define retirement:

• Health care expenses are a greater part of income
• Income comes from early investing activities or company/state pension
• Greater concern about capital preservation while balancing exposure to inflation
• Excess assets can be used to assist friends or family