Are you a chicken counter or the boy who cried wolf?
How often have you heard someone say, “I made so much money in the stock market today”? I personally hear it very often, especially when stock markets are doing so well. When someone says that I always get worried because it is usually not true. Before you crucify me, I am not saying that these […]
Plotting the dots – crucial or cryptic?
With the U.S. Federal Reserve Bank (Fed) chairman, Jerome Powell, signaling a faster pace of tapering or reduction of monthly bond purchases (liquidity support) ahead of Wednesday’s FOMC meeting, in response to hotter than expected inflation, market watchers and investors anxiously awaited the Fed’s next big reveal– the FOMC dot plot. So, what are the […]
The Hunt for Yields
As interest rates fluctuate or decline many investors often seek new products or consider restructuring their portfolio. Understandably declining rates can give rise to feelings of fear, anxiety or second guessing your investments. Investors who actively monitor their investments may become disenchanted with lower rates and begin to wonder what products they could take advantage […]
Income or growth?
Before making any investment decision, it is important to first determine the objective of the investment and how it is aligned to your investment goals. By defining your goal, one can determine if the appropriate investment will need to provide growth, income, or a combination of both. When investing for income, the investor expects to […]
Is speculating right for you?
Broadly speaking, financial markets are made up of investors and speculators. Investing and speculating are not the same. The terms are often used synonymously due to common characteristics that they share and in today’s complex financial markets the line between the two has become blurred. However, there are key differences that you should understand to make sure that you are participating in something that is […]
What is your risk profile?
Mirror mirror on the wall who is the savviest investor of them all? Many times, the new investor is looking to place their hard-earned money into an investment with hopes of achieving a stable return. With that mindset, this type of investor tends to be risk averse and will go for a “low risk” investment […]
When your crystal ball doesn’t work so well – talking taper again!
In my July article, which was based on reasonable analyses and deductions, I predicted that the U.S. Federal Reserve Bank (the Fed) would likely start “tapering” in March 2022. Sadly, I was completely wrong. In my defence, however, I suggested then that the timeline could be brought forward based on incoming labour market and inflation […]
Is investing only for the rich?
In a recent Sterling Asset Management panel discussion on Investing and Insurance, a question was raised that seems to be asked quite often. “Investing is only for the rich: how does someone start investing even though they may not have enough money?” As with any goal in life, it is important to plan the steps necessary for achieving the goal. […]
Lifestyle Inflation
Congratulations you have finally gotten that promotion you have been working so hard for and with that promotion your salary package has increased. An increase in one’s income is worth celebrating, who does not like more disposable income? However, when your income increases you need to be careful about lifestyle inflation. As you climb the […]
Adding bond funds to your portfolio
An investment fund is a financial vehicle that pools money contributed by a group of individuals to invest in different types of assets. There are numerous investment funds and numerous ways to classify them, however they are most often categorised according to the type of asset in which they invest. A bond fund, as the […]
To sell or not to sell – that is the question
Interest rates are low and have been for quite some time, so it may be hard to remember a time when you could buy an investment grade bond with a coupon of 8.0 percent, but that was once the reality. If you are a lucky investor who is holding such a bond, you may have […]
Assessing the risk of default
Every investment has a probability of default – it has quantitative and qualitative components. If you are buying a bond – your first concern is usually quantitative “can this company or Government afford to repay me?”. In the case of a company – is it cash flow positive, is it solvent, what are the other […]
A deeper look at credit spreads
In an earlier article this year, I remarked that the paradox of bond prices rising as interest rates rise could be explained by falling credit spreads. So, today I want to delve a little bit more into the usefulness of credit spreads and their importance to bond investors. What is a credit spread? A credit […]
Investing my windfall
Everyone’s journey in life is different. We take different paths to achieving our goals and some paths may be more difficult than others. However, planning and preparation can help us to achieve our goals. A common goal shared among most, if not all people, is that of financial freedom. We all want to be able […]
Emotional investing
It is often quoted, “An investors worst enemy is not the market but his or her own emotions”. There are numerous theories which attempt to explain how investors react to regret or overreact when buying or selling their investments. Many times, their reasoning is based on the level of stress which leads to fear and […]
Bond laddering for predictable cash flow
A popular investment strategy for an investor seeking a predictable cash flow is bond laddering. Bond laddering is in essence building a portfolio of bonds with staggered maturity dates. For example, the portfolio can consist of bonds maturing in three, five, seven and ten years. You can think of each bond’s maturity as a different […]
Is volatility always a bad thing
There are always things happening to unnerve markets and cause volatility, from changes in commerce, to politics, to economic outcomes and corporate actions. Volatility is an investment term for when a market or security experiences swings in either direction, up or down, that deviate from the norm. If the price stays relatively stable, the security […]
Returns at different risk levels
It’s widely known that the return you earn is a function of the risk you take. Higher risk equals higher return. Lower risk equals lower return. But what is high and what is low? How do we determine a high return vs. A low return? That is heavily influenced by prevailing market conditions. Back in […]
Call and make me whole
One of the most overlooked features of a bond is a make-whole call provision but one can be forgiven for this because rarely does an issuer exercise this option. But however rare it is, it does happen. Just recently Macy’s (the famous retail store in the U.S) used this provision to early redeem its 8.375% […]
Credit quality
In the investment world, the terms credit, credit risk and credit quality are repeatedly used when speaking about different asset classes, investment types and issuers of debt. But what do these terms mean and how should they factor into our investment making decisions? In its broadest definition, credit is an agreement between a lender and […]
Setting financial goals
If you don’t know where you are going how will you get there? Many of us have an idea of where we want to be financially or a specific goal in mind we would like to achieve. However, if you start without a goal and then try to create a plan, there is a great […]
The numbers that matter
Bonds are fixed-income investments that many investors use for a steady stream of income, especially during retirement. When buying a bond there are two critical numbers that you will encounter- the coupon rate and the yield. It is important to understand the difference between these two numbers, what they represent and why they are important. […]
Why you should use a mortgage even when you have enough cash
Real estate is a popular component of most investment portfolios. Indeed, it is important to own one’s home and many investors use it as a store of value. In many cases, “mature” investors seek to purchase starter homes for their children or grandchildren a means of passing wealth across generations. There is always temptation to purchase these properties using “cash” or “equity” i.e., to give their children a property that is free and clear […]
Let’s “taper” talk
“Fed Taper” talk is in the air again, well at least the talking about talking about phase which can be interpreted to mean that the U.S. Federal Reserve Bank (the Fed) is merely considering tapering rather than seriously deciding to do anything about it. But what is “tapering”, when is the Fed likely to begin […]
Financial independence
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 […]
Misconceptions of investors who are young
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 […]
Why time horizon matters when investing – Part 2
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 […]
Why time horizon matters when investing – Part 1
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 […]
Diversification within asset class
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. According to Investopedia, “diversification strives to smooth out unsystematic (unique to a company or industry) risk events in a portfolio, so the […]
Repos and risk
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 […]
The devil is in the details
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 […]
Riding the waves of market volatility
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 […]
Bull vs. Bear
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 […]
Predictable vs. Predictable
One of the many things I have observed during this pandemic is how similar people and Investments are. I know this seems like a strange thing to say but journey with me for a few and you will see the similarities too. One of my friends and I had a conversation about curfew compliance a […]
You need to be flexible in your retirement planning
How often do you re-assess how much money you will need to last you through your retirement? Did you know that this figure will change based on the interest rate environment? Interest rates affect how much money you need to put aside each month for retirement. It also affects what your investments will earn during […]
US equity markets – Beware the FOMO
The U.S. equity markets have attracted a lot of interest in recent months as the economic recovery takes shape (i.e., V-shaped recovery) and even accelerates. Indeed, the equity markets have had a tremendous run since their COVID-19 meltdown in March 2020 which resulted in the major U.S. indices falling about 30%. The S&P, DOW & […]
Good financial habits
The Planning and setting of goals are a very important part of our daily lives. This should also be applied to our finances to accomplish financial freedom. Having a goal that is realistic as well as steps that are measurable, will allow for easy tracking of our progress. Determine your net worth A good starting […]
You are never too young to start investing
2020 saw extreme volatility in the investment market. Recent statistics suggest a significant increase in trading activity in the market from young investors who are taking advantage of the investment opportunities available. What to look for as a young investor As a young investor, your focus should be on growth-oriented assets, since you have decades […]
Simpler than a Bond
Simple can be considered as boring, but sometimes simple is exactly what we need. I recently met with a prospective investor (virtually of course) who had gotten badly burned in the stock market. After licking his wounds, he decided he was ready to invest again, but after his bad experience he wanted a simple, short […]
Why Mutual funds are a good substitute for a pension fund
According to FSC data, the total assets of the private pension plan industry as of September 30, 2020 stood at J$639.29 billion. 37% of this J$639.29 billion is invested in “pooled investment arrangements” (I.e., mutual funds or unit trusts). This is the single largest concentration in any asset class. In other words – pension fund […]
Questions to ask your financial advisor!
All great relationships begin with trust and understanding. This applies in both personal and professional situations. Choosing a financial advisor for investment guidance should also adhere to this principle. The investor/advisor relationship should be one where the investor trusts the expertise and integrity of the advisor and the advisor should understand the goals and risk-profile […]
The paradox of rising bond prices while interest rates rise
You have probably heard the phrase that interest rates and bond prices move in opposite directions. That is, as interest rates rise bond prices are expected to fall and vice versa. However, since the start of 2021 we have observed a steady rise in international rates, yet corporate bond prices continue to increase. How can […]
Less may be more (when it comes to investing across brokers)
Does it make sense to hold your investment portfolios with different financial institutions in case one runs into trouble? In the world of investing, the ways in which you can diversify are endless- across currencies, countries, industries, asset classes and more. When done in a structured, meaningful way it can protect and improve the performance […]
Where do you get your investment advice?
As investors we seek to make the best investment decisions with the intention of maximizing our returns. However, the reality is that with so much information and so many investment options available, it can be difficult for an individual to sort through this information to make an investment decision. As a result, many seek investment […]
Myths about diversification Part 2
Important questions to ask when someone yells “diversification!” What are the metrics of diversification that really matter? Credit or Default Risk: Default risk is the chance that the issuer of the bond you purchased will not repay your principal or interest (in full) at the due date. One measure of this risk is a “Credit […]
Myths about diversification Part 1
Diversification; be specific “Diversification” – hands down the most overused term in any industry. Why do people love this term and why is it so universally revered? Anyone that owned a small number of Tesla or Apple shares a few years ago is certainly wishing they did not “diversify” so much. Meanwhile people who owned […]
Deal or No Deal
The thought of shopping evokes different reactions from people, some people’s expressions light up at the thought of going shopping while other people are unable to hide their grimaces. Whether you are shopping out of necessity or just for therapy, most of us are searching for the best value for money as well as maximizing our convenience. Let us […]
How to invest amidst the Coronavirus
This week’s article answers some of the questions we have been asked about the CoronaVirus and its impact on your investment portfolio. How have markets reacted to the virus? Stocks initially declined dramatically on the spread of the coronavirus. Riskier bonds declined in price while safer bonds increased in price. Oil initially declined as economists […]
Investing Mistakes 2019 Disproved
2019 dispelled three huge misconceptions about investing The Jamaican Stock Market is more attractive than the U.S. stock market Bonds can’t deliver growth You can’t lose with Real estate In 2019, the S&P 500 delivered a higher return to investors for less risk than the Jamaica Stock Exchange. During 2019, the S&P 500 index returned […]
How to Identify a Bubble
How to identify a bubble? What is a bubble? Investopedia defines it as “a rapid escalation of asset prices followed by a contraction, often created by a surge in asset prices that is fundamentally unwarranted.” In layman’s terms, this is when prices of assets like stock, real estate etc. rise way beyond what seems to […]
Familiar Name Not Familiar Risk
Familiar names offer a false sense of security Common investing mistake number 2: Familiar names are low risk. Just because you are familiar with the name of the company and it’s business line, does not mean that bonds issued by the company are “low risk”. A good example is Barbados. The island lost its investment […]
Biggest Investing Mistakes Right Now
Over the next few weeks, we plan to discuss the 3 biggest mistakes that local investors are making right now. Investors could be earning 15% to 20% MORE per annum by avoiding these common errors. Today, we will discuss the first mistake and discuss the subsequent mistakes in separate articles. Mistake number 1: Real estate […]
Hot in Here
IT’S GETTING HOT IN HERE It isn’t only temperatures around the world that are rising; bond prices are rising as well. Why is this happening and how should you invest in this environment? Bonds prices have an inverse relationship to interest rates; when interest rates rise, bond prices fall, and vice-versa. To help you visualize […]
Myth of Real Estate Returns
Debunking the myths around real estate returns Over the next few weeks, we plan to discuss the 3 biggest mistakes that local investors are making right now. Investors could be earning 15% to 20% MORE per annum by avoiding these common errors. Today, we will discuss the first mistake and discuss the subsequent mistakes in […]
Your Jamaica Public Service (JPS) bond and you
JPS recently announced that it would call (i.e. “repurchase”) its 11% 2021 bond at a price of 101.83 from bondholders on March 5, 2019. This means that in addition to the interest earned for the period, bondholders will receive their principal of US$101.83 for every US$100 of face value invested. The bond is widely held by local investors. What will […]
2018 Market Recap Escape the Falling Knives
Asset prices declined: This past week, we observed a broad-based decline in asset prices – both bonds and stocks experienced sell-offs. Any observed asset price increases were likely the result of positive firm specific events or news. What is to blame for the decline in prices? When is a fall in price an indicator to […]
Your Savings in the Bank are Losing Money.
Your savings in the bank are losing money every day. Keeping your savings in cash is one of the fastest ways to burn a hole in your net worth. This applies to many repos as well. By ignoring the rate of inflation or accepting sub par returns on your investment, you are reducing the future […]
Barbados- The Writing Was On The Wall
It was a little over a year ago on Sunday March 12, 2017 that a colleague of mine, Eugene Stanley, wrote an article titled, “Barbados – A classic case of a falling angel”. The writing was on the wall from then and here we are today. In a surprisingly aggressive start to her career as […]
Why Bonds are a Better Buy than Annuities
Retirement planning: Should I buy a bond or an annuity? How does one choose between an annuity and a bond or portfolio of bonds? Few investors realize that they can enjoy the security of an annuity with much higher income and total returns. This can be achieved with a low risk bond portfolio. There are […]
Bonds for the Equity Investor
Bonds for a betting man Have you ever placed a bet? You agree to pay a certain amount to your friend/casino if a certain condition is met. For example, you may have bet that the Patriots were going to win the NFL in 2017. Or that Chelsea would have won the EPL in 2016. If […]
Types of Mutual Funds
How Do Mutual Funds Work: An Introduction With gut wrenching volatility pervading global capital markets, investors are eager to find a stable yet rewarding safe haven for their funds. For the conservative investor, managed investment products such as mutual funds and exchange traded funds are attractive investment options. Today we’ll take a closer look at […]
An Introduction to Mutual Funds
Mutual Fund Basics Mutual funds have become an increasingly popular investment alternative for today’s investor because they offer a convenient cost effective way to invest in the financial markets. In the simplest of terms a mutual fund is a company that brings together a group of people and invests their money in investment vehicles such […]
2017 Year in Review – The Data
US Economy: The Federal Reserve (Fed) raised interest rates 3 times in 2017, each time adding 25 basis points to the lower and upper end of the range. As at December 13, 2017, the Fed’s benchmark interest rate range was 1.25% to 1.5%. The Fed has projected 3 rate hikes in 2018 while some analysts […]
Sovereign vs. Corporate Bonds
A bond is a debt instrument whereby an entity can raise capital to finance their operations by attracting investors to participate. Simply put it is a loan to the entity (referred to as the issuer) and will have certain contractual features such as principal amount (Face Value), rate of interest payable (coupon rate), coupon dates […]
How to Compare Investments
The importance of relative value: How to compare and assess investments With the GOJ USD bond redemption last Friday, investors will be assessing a wide range of options from different institutions. A common quandary: Bank A is showing me 4.5%, Bank B is showing me 5.6% and Bank C is showing me 8.5%. How do […]
Debunking The Myths Of Premiums And Discounts: How Bond Prices Work
Debunking the myths of premiums and discounts: How Bond Prices Work Over my long 15-year career as an Investment Advisor, I’ve realized that many bond investors are still unaware of how to use bond prices to their advantage. Today we are going back to the basics – specifically as it relates to how yields and […]
Barbados – A classic case of a ‘falling angel”
A “fallen angel” in finance is a rated entity which once carried a high credit rating (investment grade) and displayed exceptional performance, but has since experienced sustained declines in ratings culminating in the loss of its investment grade status. Barbados’ financial woes over recent years have placed its debt in that demeaning category and future […]
Local vs. International Bonds: What’s the Difference?
Investing in a low interest rate environment can be very challenging. Investors are actively seeking new types of instruments to place their hard earned life savings. They will sometimes overlook many obvious risks just for the sake of earning high returns and it turns out that there are many new and different structured investment instruments […]
Bonds – High Yield vs. Investment Grade
Bonds – High Yield vs. Investment Grade Global bonds are a very popular choice of investment for local investors seeking fixed income options and are a good alternative to the stock market. These bonds are primarily issued by governments and corporations as a means of borrowing funds for the short (maximum 1 year) to the […]
Brexit –The Aftermath
June 23, 2016, will be forever etched in our memories as the day England chose to leave the European Union(EU). It was a move that sent shockwaves across markets all over the world. Earlier that same day, the market predicted that they would remain in the EU, and stocks, commodities and bonds rallied across the […]
Investment Calendar Effects and Myths
This week we will be examining some calendar effects and myths concerning investments. Many of them can be traced back to over a hundred years ago, and there are several camps of investors who either believe wholeheartedly in these effects or dismiss them all together. It is important to note that myths or old wives’ […]
Junk Bonds May not be so Junky
When you hear the term “junk bonds” you might be inclined to think that they are worthless; but don’t let the term fool you or scare you away from these securities. Despite their name, junk bonds can be valuable investments for informed investors and may actually have a place in your portfolio because of their […]
Spotlight on Exchange traded funds
This week, over 900 investment professionals gathered in Hollywood Florida for the largest ETF conference on record. During their coverage of the event, CNBC shone a particularly interesting light on the ETF industry. According to the report, the total asset size of the ETF industry recently surpassed the US$1 trillion mark (approximately 3 times the […]
Exchange Traded Funds Article
Spotlight on Exchange traded funds This week, over 900 investment professionals gathered in Hollywood Florida for the largest ETF conference on record. During their coverage of the event, CNBC shone a particularly interesting light on the ETF industry. According to the report, the total asset size of the ETF industry recently surpassed the US$1 trillion […]
Bonds – Understanding Yields And Returns
So, you are at the point where you are considering the purchase of some bonds. As an investor, one determinant of what you purchase should be the yield you may expect from your investment. There are basically 3 types of yields that would interest the average investor. These are the coupon yield, the current yield […]
Callable Bonds
Callable bonds This week, the Sterling report aims to introduce another common feature of fixed income instruments – call options. By explaining the way a call option works, the implications and the pros and cons, we hope to improve your ability to evaluate your investment options. Bonds that are structured with call options are referred […]
An introduction to bonds
What Are Bonds? A bond is an IOU in which you, the investor, agree to loan money to a company or government or other known entity – called the Issuer – in exchange for a specified rate of interest over a fixed period of time. Its opposite is a stock, which represents ownership in an […]
Rating agencies and the bond markets
Key takeaways Check the credit rating of the issuer of your bond before you buy Higher risk bonds offer higher yields. These bonds are rated BB+ and below Lower risk bonds offer lower yields. They are called “investment grade” and are rated “BBB-” and above. There are many issuers of bonds on the international capital market. Institutions […]
How Are Bonds Traded
The buying and selling of bonds can be a very simple and straightforward process, but there are a few features that must be understood regarding the calculations. Face Value: The face value of the bond can be considered the “principal” value of the loan. It is what the issuer will repay you at maturity and Interest payments are calculated on […]
Who Invests In Bonds
WHO INVESTS IN BONDS Today we are going to look at the following two areas: Who are the people or institutions that usually invest in bonds; (and) What are their reasons for doing so? First, however, we’ll do a quick recap of some of the basic facts about bonds. A bond is a form of […]
How Risky Are Bonds?
HOW RISKY ARE BONDS? Last week we established that bonds are fixed interest investments that give higher returns than money market investments and individual investors or institutions that are looking for income and modest growth in the medium to long term investments would find them very attractive. However, they do carry risks. In this article, […]