Home' Trinidad and Tobago Guardian : February 15th 2015 Contents FEBRUARY 15 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL ROAD MAP | SBG7
Leslie, 48, received a windfall
of $1,000,000 from his
father s estate, which he
deposited into his savings
account 18 months ago.
Apart from this, Leslie has
been contributing $1,000
monthly to an annuity for
the past 18 years. This plan is set to mature
when he is 50, at which point he will collect
a lump sum and a reduced monthly pension.
The annuity has a minimum guaranteed inter-
est rate of 3.5 per cent. He has a credit union
share account with a balance of $35,000. Apart
from these assets, Leslie has no other savings
as he was determined to completely pay off
his home mortgage two years ago.
His income consists of $2,500 rent from a
small studio apartment at the back of his home
and part-time lecturing that generates about
$4,500 per month. His monthly expenses sel-
dom exceed $5,000. A friend of his recently
purchased a small two-bedroom house in east
Trinidad for $750,000, which has given him
hope that there are still deals out there.
Leslie wants to use his lump sum to purchase
a second property to augment his retirement
income but, at current prices, he knows this
is like finding a needle in a haystack and he
has to be very patient.
In the meantime whilst he enjoys the relative
safety of his money in the bank, he has a con-
cern of having all of his eggs in one basket.
He would like to get a better return than
the .03 per cent he currently earns. His friend
Barry mentioned he could consider directing
some of these funds to a money market fund
at his bank and then put some in the credit
union system where some pay dividends
between three per cent and five per cent annu-
ally. Leslie s challenge is: how should he allocate
his funds across all of these different types of
Nick's Assessment & Advice
Whether it is $10,000, $100,000 or
$1,000,000, a basic investing rule of thumb
is: not to put all your eggs in the same basket.
Whilst the banking sector in T&T is quite
robust, many people still feel uncomfortable
having their entire pie in one financial insti-
tution. It is important to note that each depos-
itor s funds is protected by the Deposit Insur-
ance Corporation (DIC) up to a limit of
$125,000 per individual per registered financial
This facility is also extended to some credit
unions where their customers shares are pro-
tected up to the same $125,000 and deposits
up to $50,000.
With mutual funds on the whole, there is
no such coverage with money market funds.
There is relative safety based on the nature of
their underlying government securities.
Leslie s primary objective is to purchase
another property with the funds he has. He
will need to respond quickly to a deal if and
when it presents itself.
On the first count, he has to make the req-
uisite 10 per cent downpayment and if his
price tag is $1 million, then he needs to have
quick access to at least $100,000 plus closing
He will then need to mobilise the remaining
$900,000 within three months, which is the
standard time for a sale agreement.
Based on Leslie s short time horizon for
property acquisition and his age he will need
to ensure safety of his principal.
As it stands, Leslie s money is relatively safe
in the bank but only $125,000 of these funds
are insured. He may want to consider splitting
it up across various DIC registered financial
institutions: banks and credit unions alike.
Leslie wants to maximise his returns without
taking on too much risk and the spectrum of
instruments suggested by Barry falls within
the range of safe investments but offer some
amelioration in returns.
The thing is, as safety is more or less the
same and as returns get progressively higher,
Leslie may have to forego speed of access to
his funds as in the case of the better performing
credit union shares. It could take him anywhere
between three to six months to cash in on his
shares so this is a question he needs to ask
them up front so he can match his property
transaction timelines to his investment. If
Leslie puts his funds in a credit union that
takes six months to redeem his shares, then
he may be forced to borrow against his shares
or seek an extension in his property sale agree-
Table 1 shows a suggested distribution of
Leslie s funds to accomplish his investment
In the table we have omitted the $35,000
that he already has in his existing credit union.
We have also selected three credit unions to
spread the risk so in terms of uninsured funds.
Leslie has moved from an exposure of $875,000
($1 million-$125,000) to $350,000 and he has
increased his portfolio return from a savings
account rate of .03 per cent to a weighted
average return of 1.96 per cent.
Time, prices and cash
If it takes Leslie up to two years to find a
property, he would have access to more cash
to contend with higher property prices. He
would have the dividends and interest earnings
on his portfolio and a lump sum form his
We estimate this latter figure could be in
the vicinity of $90,000 plus $1,000 in monthly
pension (based on the data provided).
If you have any further questions or need
advice on today's subject please e-mail me
at: NickAdvice@gmail.com or Web me at:
Set and stick to your goal
Each depositor's funds is protected by the Deposit Insurance Corporation (DIC) up to a limit of $125,000
per individual per registered financial institution. This facility is also extended to some credit unions where
their customers' shares are protected up to the same $125,000 and deposits up to $50,000.
Links Archive February 14th 2015 February 16th 2015 Navigation Previous Page Next Page