Q&A with CMMB Securities

A: A stockbroker can provide research based on objective, factual data on a particular company and come to a conclusion about the outlook for its stock. However, that does not mean that the stockbroker guarantees that the share would move in the same way that his analysis suggests. That is not to say that the stockbroker did not apply analytical rigour to his conclusions. In finance, projections are made based on the most probable scenarios.

But, no one can predict the future and eventual outcomes may not be the most probable ones. Therefore, in taking advice from an analyst, investors should bear in mind that the situation may or may not be as projected. The best strategy is to get advice from a number of brokers and try to discern if there is a consensus projection. Yet still this is no guarantee that the projection would be consistent with reality. However, over time you would be able to determine which stockbroker gives the most accurate projections and weigh the advice given.

Q. I will be retiring later this year and I’m looking for some investments to give me good returns on the nest egg I have saved.
Looking at the growing property market, do you think putting my money into real estate would be a good idea?

Anand, Wallerfield

A: It depends. If your nest egg is such that you can set aside a part of it on which you may earn no interest, or which you may not be able to touch for a few years or some of which you can afford to lose then go ahead. The returns over the long term may well be significant due to space constraints in a growing economy. However, if you have no other source of income but your nest egg and you rely heavily on the interest from investing it to pay your monthly expenses, then real estate may not be advisable. The concern of most retirees would be to keep the value of their principal intact, that’s why minimising the level of financial risk to which they are exposed, is of great importance. It is true that real estate is almost a perfect hedge for inflation, but there may not be a monthly income stream unless you purchase a property and rent it.

Remember though every lease has an expiration date and demand for commercial tenancy is highly sensitive to the economic cycle. Even units in real estate investment trusts, which may be available, operate in the same manner as a stock and can be very volatile in the short-term. Real estate is more applicable to the years before retirement when you are earning income from employment and can afford to park aside money in property for a long time. As a retiree you may need ready access to funds and so you may be forced to liquidate your investment at a time when property values may be soft, thereby eroding your capital.

Q. How can I invest directly in the US and U.K. stock markets?

Katrina, Valsayn

A: In order to invest in these markets you would have to approach a broker. There are a few options which can be considered. You can arrange for a broker in Trinidad and Tobago to purchase the shares. While the broker in Trinidad would not have a seat on the exchange the shares can be purchased through a broker abroad. Going through this route may or may not be expensive depending on the relationship which exists between the intermediating broker and the broker overseas.

Alternatively, you may want to open an account directly with a broker in the US or UK. This would be subject to certain requirements by the broker which may have to be fulfilled. Depending on their assessments, the posting of different degrees of margin (a percentage of the value of shares being purchased) may be necessary. There are also brokerage houses available on the Internet which you may be able to access once the relevant requirements are fulfilled. Talk to a broker in Trinidad and Tobago or check the web and shop around to get the best deal possible.