Q&A with CMMB Securities

Q. We bought a house 5 years ago and the mortgage payment is $3,000 a month. My husband has just lost his job. There’s no way my salary alone can meet the mortgage. How can we hold onto our home?

Martha, Chaguanas

A: Don’t lose hope. Remember to immediately advise the bank, or financial institution holding your mortgage, of your husband’s situation. Here are a few strategies you can apply that may help.
1. Negotiate with the bank to spread your mortgage over a longer period. This would reduce the monthly installment
2. If rates in the market have fallen (as is currently the case), arrange to refinance the mortgage at a lower rate in order to reduce the interest cost
3. Negotiate a moratorium on principal payments i.e. pay interest only for a period of time in order to reduce the monthly installment
4. Draw down on your savings to help pay the installment. It is in circumstances like these that one sees the real value of savings.
5. If the real estate market is buoyant, consider renting some rooms in your house. The extra income from the rent will help to pay the mortgage.
Any one or even a combination of these measures can buy you some time while your husband looks for another job.

Q. I have heard it said that time reduces the risk involved in investment. What does that mean and what length of time is required to cut the risk?

Hollis, Santa Cruz

A: There is a concept in finance known as the “Time Diversification of Risk” and it refers to investments in the stock market.
We know that the prices of stocks go up and down in a seesaw fashion. So it’s possible for one to lose part of the money invested while it is also quite possible to gain a lot.
Nevertheless, in a growing economy the prices of stocks over the long term would be moving up. Even in the midst of that upward movement there could be short-term reductions in prices. But over the long haul, the investment should yield a positive return.
Therefore, the longer the time period — the lower is the risk that the investment return would be negative. That’s why it’s advisable to put money in the stock market which you do not need immediately and which you can lock up for a few years. Even for those clients that have invested in stocks or funds that have fallen in value, it is better to hold on because if the company’s fundamentals are strong there is a possibility that the prices could go back up.
Time is all that is needed to make the difference between a positive or negative return. The length of time would vary from market to market and is related to the length of the economic cycle of the country.

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

Sat, 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 10% 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 90% 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 & 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-SpainE-mail : cmmbsecurities@my cmmb.com