An individual’s approach to investing is determined and shaped by many factors, however, the most critical of these as it relates to forging a plan for one’s money, are age and current wealth/financial position, relative to one’s goals and any constraints.
This was explained by Dexter Moe, Vice President – Investment Management Services for Sagicor Asset Management Inc. (SAMI), as he discussed the ways in which investing can help an individual to fortify his or her financial future.
Moe stated that the goal of every investor should be to build wealth, whether for the purpose of being able to pay for the education of children, live comfortably during retirement, or leave a legacy for one’s family. “Whatever the goal, what must be clearly understood is the amount of capital that the individual can afford to dedicate to investing, as well as the amount of time (years) they have to reach their goal,” he said.
“The first thing we need to determine is the discretionary income available for investing. How much they earn versus how much they spend; or how much savings they have put aside
and what percentage of that do they wish to dedicate to this activity,” stated Moe.
“Once we’ve settled on a potential amount, the next question is related to their goals and the amount of money required to achieve them. This calculation determines the desired level of return on investment, or more simply put, the amount by which they would like to see their money grow. Of course, this is determined within the context of the investor’s risk tolerance, which is simply the ability and willingness to assume a particular degree of investment risk,” he explained.
Moe added: “The higher the rate of return or level of interest earned on the investment, the faster the financial goals would be achieved. However, the higher the rate of return, the higher the level of risk associated with that type of investment.
Higher rewards come with higher risks, so it really comes down to the amount of risks the investor wishes to take in an effort to reach their target.”
The Vice President explained that this is the reason behind the availability of investment options with varying levels of risk.
“We offer three options of mutual funds, each with a different level of risk exposure. So, if an individual invests $100 in the growth fund, they are likely to reach their financial target in a shorter timeframe than if they had invested that same amount in a more conservative option.”
Moe made the point however, that the higher risk also means there’s a higher chance of fluctuations due to increased market volatility and uncertainty.
“So this is where age becomes an important factor, because when you are younger, you generally have a greater appetite for risk, because if you lose money at a young age you have the opportunity to recover.
“However, the closer you are to retirement or to reaching the goals you’ve set out for yourself, the less wiggle room you have to bounce back. So, as individuals get older, they typically look to reduce their risk exposure.”
Moe stated that age may not be the primary determining factor for an investor if that individual has a significant wealth position. “If an individual is bringing in a high level of income or has a high level of savings, even though they may be older and closer to retirement, they may still be inclined to take greater risks because the funds that they are taking those risks with, do not represent the majority or a significant portion of their current financial position,”
he said.
Regardless of age and financial standing, the investment expert encouraged every Barbadian to look at investing as a structured and carefully managed way in which to achieve their life goals or convert their savings, no matter how small, into a financial safety net for the future.
“Especially when we take into account the experience of the last year, it is clear that looking for ways to plan for the future is simply, as our slogan says, ‘Wise financial thinking for life’.” (PR)
