Investing as retirement draws nigh

“Move to assets that are less risky like fixed income, safer government securities, a small percentage of equities and bonds,” Neilson Rose, business development manager at Barita Investments told Sunday Finance.

You should also hold onto asset classes that are investment graded — look to rating agencies and check for those that get a good grade, advised Kario-Paul Brown, research analyst at Jamaica Money Market Brokers (JMMB).

Any alteration to the investment portfolio, said Mayberry Investments executive, Wade Mars, is dependent on the amount of resources one posseses when he/she is near retirement.

“The goal of the investment differs, but one would expect that people would change the character of their portfolio,” said the assistant vice president of asset management at Mayberry.

For example, there are some instances where, instead of purchasing stocks for growth, they look for dividend income. Furthermore, investors who are nearing retirement would have estate planning and are looking to transfer their wealth to future generations, rather than converting their capital gains to cash, Mars said.

It isn’t prudent, however, to have a portfolio that is heavy with stocks.

If your portfolio was already heavy weighted with fixed-income that’s fine, according to JMMB’s Brown. Derivative type products, which usually have stocks and bonds as underlying assets, he said, are also a bit risky and involves leverage.

Rose had a few suggestions for the person who is nearing retirement and wants to start investing now.

Once you consider bonds, you could go for small amounts of bonds that pay monthly or quarterly interest, he advised.

International triple-A credit rated countries are ideal. Debts issued by the American and Canadian governments are examples of triple-A rated credits, while Government of Jamaica debt is lower in the ranking.

“We are talking about solid, highly rated debts,” Rose said. “But they carry lower yields.”

Since you are at an age where you are trying to preserve your capital while generating income, you don’t want to take risks, he noted.

And what if you are planning to start an investment portfolio a few years before you are set to retire? Assuming that you get the bills out of the way and mortgage has been paid off and there is extra cash, that’s an option.

“What you would look to do is accumulate as much as possible in a short period,” Mars said. “If you decide to start you must be realistic and conservative.”

Getting wealthy out of investing is long-term, it’s unlikely to get rich from short-term investing. Hence, it is widely advised that you start from your younger years.

On the other hand, let’s assume that you still have mortgages and other debts to pay off when you are on the verge of retiring, you would need to make projections of your pension and organize your life within a budget.

Some retirees who receive pension will have to survive on it. That money can either be given on a monthly basis or as large lump sum. As such, it is ill-advised to spend it all at once.

Your pension though won’t keep up with the rate of inflation; you’ll have less purchasing power.

“So if you invest your pension, it should be done in such a way to augment any other income you may get,” Mars said.

As it relates to buying into investment products, the same rule of less risky options applies.

There are unit trusts and mutual funds that capture various levels of risk tolerance, Brown said.

As such, go for the ones that aren’t risky. For example, stocks would be a more risky option than fixed-income.

Invariably, older folks will have a shorter time to rebound from losses than the younger ones.

There are also exchange-traded funds (ETFS) that work like mutual funds but are traded on an exchange.

ETFS allows you to buy into stocks, commodities and fixed-income.

But Rose suggests that those aren’t necessarily a good idea.

“ETFs are high risk so you wouldn’t be wagering into ETFs,” he said.


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