FINANCIAL NOTEBOOK - Q&A with CMMB Securities

Q: I have a well-paid job, but I’ve been trying to get out of debt for years. It seems like a deep hole. How can I climb out?

Nareesh, Penal

A: There is no magical formula to free yourself of a heavy debt load. It just requires plain old-fashioned discipline on the part of the individual. Don’t hang your hat where you can’t reach. Live within your means. But there are some ways to negotiate your loans in order to get some relief. Make sure and have the option to make lump sum payments to your loan before the maturity. This would help to reduce your debt load as you come into some money. It would also help to reduce your future monthly payments of principal and interest. Some facilities put heavy penalties on early repayment so make sure and negotiate this away so you would have the freedom to settle your debt early.

Secondly, make sure and shop around for lower rates from two or more banks in order to get a clear idea of what is being offered in the marketplace. As rates have fallen drastically it may be possible to renegotiate the interest rate on your loans and hence reduce the interest factor of your monthly installment. Thirdly, try and spread your loan over a long period in order to reduce the size of the monthly payments. This would ease the strain on your monthly cash flow. While the interest you pay over the term would be higher this may be necessary to allow you to meet other monthly commitments.

Q: I’ve been trying to save enough money to put down a deposit on my first house. But every time I think I almost have enough, house prices shoot up. How can my savings ever catch up with the on-going rise in property prices?

George, Malabar

A: Buying a home is actually a good investment. But as you quite rightly pointed out, the prices of houses tend to move up quickly in a growing economy where there are space constraints. Your experience is that prices are continuously rising and you are unable to afford it. But if you can obtain an agreement for sale from your real estate agent then the price is fixed even if in the interim, before you execute the mortgage, prices rise again. This would, of course, work to your advantage, as the value of the investment in your home would go up, once you can make it initially. Therefore, sinking your savings into a house is much better than renting as you are actually buying an asset whose value would grow over time. It is a fact that the prices of properties tend to move above the rate of inflation. Such an investment would thus result in preserving the value of your money or what is called its purchasing power. You should therefore be able to recover the full value of your investment plus inflation if in the future you decided to sell your house and move again.

Q: I want to start investing directly in the stock market. How much money do I need to get the ball rolling?

Robin, Freeport

A: It depends on the broker. Most have minimum transaction sizes, but the average would be about $500. If you have a small amount, there are shares on the market which have low prices and so are quite affordable. A positive feature of these relatively low-priced shares is that for a given dollar value growth in the stock price, the percentage return on capital is much higher than a higher priced share. So if you have a small amount of cash to start with that does not prevent you from being able to benefit from the high returns on the stock market.

The process is simple. Just walk in with picture identification to a stockbroker’s office. You sign a share purchase form for the number of shares you want in a particular company at the price you would like to buy it at. Then most brokers would ask for some type of down payment, which averages about ten percent of the transaction cost. When the broker obtains the shares on the exchange you would be contacted, after which you would go into the office seven days after to pay the other ninety percent of the purchase price. At that point you would be presented with a transaction ticket, which is proof of purchase. This is held until your certificate is delivered which would take about six to eight weeks. Or you can arrange to deposit the shares into the Trinidad and Tobago Central Depository, which is an electronic exchange from which you can easily sell your shares and hold for safekeeping.

Questions can be sent to PO Box 1830, Wrightson Road, Port-of-Spain
e-mail : cmmb@mycmmb.com