Home' Trinidad and Tobago Guardian : August 16th 2015 Contents The case
arion and Peggy joined
the company at the
same and for ten years
they have been very
good friends. When it
comes to business and
money they usually collaborate then end up
making roughly the same decisions. Their
mantra has always been: "if it s good for one,
it s good for the other."
One investment, however, has not per-
formed very well and---through a series of
ups and downs---what was once $80,000
is now worth $65,000.
They also noticed that the mutual fund
has never paid dividends or interest. When
they consulted the prospectus they realised
that returns were based purely on changes
in unit prices.
Whilst Peggy has another 15 years in the
company, Marion is a mere eight months
from retirement and she is becoming
increasingly uneasy with this investment.
She is planning to cut her losses and transfer
what is left of her funds to their employer s
credit union, which they both have been
investing in at $1,000 each month, earning
annual dividends of 5.5 per cent. She has
advised Peggy to do the same.
Peggy is also a bit uneasy with the fund
performance but decided to talk to Brian
(an accountant with the company) first who
advised that the friends should hold out
for a while until prices rebound so they
can recover at least what was originally
For the first time in ten years the friends
have a difference of opinion and neither is
certain which is the best decision.
Nick's assessment and advice
Friends, relatives and associates
This case highlights the power that friends,
relatives and associates have on an individual s
decision when it comes to investing.
The obvious downside is that many people
offer advice but are not qualified to do so.
This can lead to losses for the investor.
In this case we observe the influence of:
the salesperson, who may not have enough
information about the investor before sug-
gesting this product; the friend who is 15 years
senior, and the accountant who may have
more information on finances, at least from
a corporate level but definitely not from a per-
sonal financial standpoint.
Notwithstanding the fact that the informa-
tion exchanged may have some truth, it is
another thing whether it is applicable or not.
These two friends may have very similar
financial situations but the most important
difference between them is their ages.
Marion is on the cusp of retirement and
her focus may be quite different from Peggy.
At this stage Marion s investment objectives
may be centred on safety of capital and income
Peggy, on the other hand, is a good 15 years
from retirement and whilst she may not want
to lose any of her hard-earned cash, she may
be inclined to take more risk for the sake of
recovering from the investment loss and mak-
ing a profit: her objective may be growth.
Buy, sell, hold
It is a phenomenon to see how investors
respond to various market conditions.
Many times, if an investment increases in
price, some individuals would be inclined to
jump in and buy but they could very well be
doing so at an all-time high price and there
is no guarantee that it would continue on that
trajectory. The key is to buy when the prices
are relatively cheap. Of course the challenge
is determining whether prices are at their low-
est. Who is to say prices will not go lower?
The trigger for many people to sell is also
often an emotional one, where they are reacting
to, say, a precipitous fall in prices and not real-
ising that a lower price may mean an oppor-
tunity to buy.
It takes strong will and detached emotions
to make such decisions.
Fear and greed are often the two most coun-
terproductive emotions that any investor can
The decision to sell must be based on a
sound set of criteria that the investor sets sig-
naling time to exit from the investment. Such
a criteria could be based on time horizons,
achievement of a particular return on invest-
ment or a predetermined price point.
Sometimes an investor may hold out too
long as Marion may have done.
If her plan was to have her money secure
at retirement, she should not have held out
so long but bailed maybe a year or two earlier.
The opposite is true for Peggy who, with a
lot of time ahead of her, could still weather
the storms and even consider investing further.
The advice from Brian may be appropriate
for Peggy but not for Marion.
Matching investment with individual
In this day and age where returns are either
negative or less than one per cent per annum,
a 5.5 per cent return with this credit union is
Using the numbers given, should the friends
switch out of the mutual fund (assuming there
are no penalties for doing so) and into the
credit union, it would take about four years
to recover the $15,000 loss they experienced
with the original investment.
This, of course, does not address the issue
of the change in purchasing power of the
$80,000 over time but it certainly is better
than the present.
This strategy may be a perfect match for
Marion based on her profile as an investor.
Peggy, on the other hand, would see a def-
inite improvement in her values by following
Marion but she might also want to consider
Brian s suggestion---not just to hold but an
aggressive decision to divert the $1,000 from
the credit union to the lower priced mutual
fund---picking up more units at a cheaper
This gives her a greater upside potential
should prices rebound. It is a gutsy move but
Peggy could set a timeframe of perhaps five
to ten years after which she could stop investing
and just ride the waves if her account balance
is over and above what she expects. Then she
could sell and divert to the same credit union
to lock in her returns.
Caution: There are many personal financial
factors to consider when making an investment
decision and the reader should consult a qual-
ified financial professional before doing so.
F C C
AUGUST 16 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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When age affects investment
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