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Money Thieves-Who Took My Money
Sunday 20, May 2018

Money Thieves - Who Took My Money?

YaniqueF_1

Ok you got me, I was just trying to get your attention.  It really isn’t a question of who but what took my money.   We refer to counting our money, but the real measure of money is what it can buy a.k.a. purchasing power.   You may find that you have more money, but less of an ability to purchase goods.  Therefore, in this article, I will examine the “thieves” that take away our money.

The very first one is inflation.  This would have been a serious concern to people who have been investing in Jamaican dollars over the long term.  In Jamaica, the inflation rate has gone down considerably and is not currently a huge concern.  However, in 2007 and 2008 the inflation rate exceeded 16%, which compared to today’s levels seems very high, yet, this was nothing compared to 1992 when the rate exceeded 77%.  What this really means, is that people who have been retired for many years would have been severely impoverished during periods of high inflation.  Real estate and stocks are the assets touted in the text books as being the best hedge for inflation.

The second thief is devaluation.  This is another funny one.  Last year, the Jamaican dollar appreciated, however, this year it has been up and down.  A quick look will show that recently the pace of devaluation has slowed, but the long-term rate is pretty scary.  In 1990, the average exchange rate went from 7.24 to 43.39 for 1 U.S. dollar, by 2010 it doubled to 87.33.  Currently it trades within a range of 125 to a little over 128.  Any devaluation is exacerbated by the loss of purchasing power over the years in the United States of America.   Back in the day, a short trip to Miami with US$1,000.00 would take you back with a full suitcase of goodies.  Now, the same amount is likely to leave you with lots of space!  U.S. dollar denominated investments, like bonds, are good options if this is a concern.

Amnesia would be the third thief.  I remember one year, when I checked my bank account, and compared my earnings against the balance remaining and I truly could not recall what I had spent my money on.  It was such a frightening moment for me, that ever since, I track every penny.  Tracking expenses is a useful tool when you are trying to cut expenditure since you can see at a glance where the bulk of your money is going.

There are two kinds of people:  those who go for safety and only invest in predictable instruments and those who are very impatient.  The conservative investors give up potential upside return for lower risk and the impatient investors jump head first into investments i.e. they don’t want to keep any money in cash.  The disadvantage with moving too quickly is that you may tie up your money and shortly after, a better opportunity comes along.  This is the reason that when you are putting together your portfolio, you need to have cash-not just for emergencies but for opportunities!

Lastly, time can be your friend or your enemy.  Spending your money on assets, i.e. things that will give you back money, like stocks, bonds, real estate, will normally pay off in the long run.  However, spending on things like cars, clothes, and other consumer items ensure that your money is truly “stolen”, never to return.   Be vigilant of the money thieves!

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback:  If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm

 

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