The idea of financial independence (FI) can be different for many people. For some, the idea of FI is one of having enough income to cover your expenses for the rest of your life without having to be employed. For others it may be saving and investing so as not to rely on others to achieve your financial goals. No matter your definition, FI is about setting and reaching a goal which will then enable you to live comfortably for the rest of your life.
There are many beliefs and misconceptions that are held by young investors today. Often great opportunities are lost because of this. Generally investing seems demanding, risky, and boring. They frequently view investing as something for others who are more aware, older and at a certain stage of their life. Like any other excuse, they rationalize their avoidance concerning not investing and often miss great opportunities to grow their wealth.
In part 1 of this article, published last Sunday, we discussed what a time horizon is and how it should affect the selection of your investments. As a quick recap, the time horizon is the length of time an investor expects to own their investment and can be determined by estimating the length of time it will take to reach a particular financial goal. The less time you have until you will need the invested money, is the more conservatively you should invest, since you are unlikely to have enough time to recoup any losses if they occur.
When deciding on what type or types of investments you should hold there are very few questions that are more important than, “What is your time horizon?” The time horizon or investment horizon is the length of time an investor expects to own their investment. If you can estimate the length of time, you think it will take to reach your financial goal, then you will have an idea of what your time horizon is.
Many investors often think of diversifying as having different investment managers and investing in different asset classes. However, there is also diversification within asset class which unfortunately is not considered enough by investors.
Arguably one of the most popular investment products in Jamaica – the “repo”. Why do Jamaicans love repos so much? Like most people we all prefer to park our money somewhere and know that we can come back to it in 30 days, 90 days, 180 days or 1 year and see the exact same amount PLUS some interest. No price fluctuations, no excuses, just what you put in plus what you earned, simple. People generally view repos as low risk because of the stability of the returns. While returns are stable – repos carry risk, and you should know how they work.
As interest rates remain low, many issuers of debt (e.g. bonds, corporate notes, etc.) will look for possible ways of reducing their interest expenses. They may do this by executing call options and reissuing debt at lower rates. These lower rates will reflect the current market levels for the associated risk. Rather than continuing to pay high interest payments, it is to their benefit to pay off these debts and save money by issuing new instruments at the lower rates.
Due to the heavy influx of news that we receive daily, you may have missed out on some financial news and the opportunities presented by the tremendous volatility in the U.S. stock, Mutual fund, and Bond markets as well as the various upheavals in other global markets. Market volatility persists causing many investors to speculate about the right time to re-enter the financial markets. It is almost impossible to know when the markets will move in your favour as many pundits have been proven to be wrong in the past.
How often have you heard the terms “bull” or “bear” used in the investing world to describe general actions, attitudes, or sentiment, either of an individual asset or the market conditions? As common as these terms are, defining, understanding, and remembering what they mean is not always very easy. Because the direction of the market is a major force affecting your portfolio, it is important that you know exactly what the more commonly used investment animal terms signify, how they are characterized, and how each one affects you.
