Oran Hall | Investing your tax refund

QUESTION: I was online reading your response to a young lady who wanted to invest $50,000 in companies. I am to receive my tax refund next month, and I am looking forward to investing a portion of it. I love agriculture, particularly beekeeping, and was hoping to buy a few more hives. But my dad told me to wait a little until the weather is better so as to ensure that the honeybees have a better supply of nectar. He told me to put the money in the bank, but I am well aware that it is a waste of time. I was thinking I could approach Lasco, GraceKennedy, etc, and ask to invest in their companies. I have little knowledge of accounts but an interest in financial growth. I hereby seek your advice as to what I should do.

Verone

FINANCIAL ADVISER: It is good to learn that you want to invest your tax refund and pursue an endeavour in which you have an interest. You should have good returns to show if you stick to this approach, but I cannot say this will happen overnight.

I agree with you that money in the bank is a waste of time if your main interest is earning income on it. This is why the expansion of your beekeeping business makes sense although it has its risks and requires time and attention. I wish you well.

I doubt it will take a long time for better weather to come, so any investment you make until that time will almost certainly be of a short-term nature. For that reason, and others, investing in ordinary stocks is not a good option.

Although it can be quite profitable, it can also bring devastating results. The approach to take if you want good results is to take the long view. Another challenge you could face is the uncertain liquidity of stocks. Although it is sometimes easy to convert ordinary stock to cash, it can also be quite difficult perhaps at the time you, need the money most.

USEFUL INFORMATION

For general information, though, let us see how to go about buying stocks. When you buy stocks, you become an owner of the company, but you do not have to go to the company to do this. That is why we have stockbrokers. They are authorised to trade on the Jamaica Stock Exchange, and thus, buy and sell stock as agents of their clients.

The first step, therefore, is to check for the list of stockbrokers in the telephone directory, by using a search engine on your computer, or by checking the website of the Jamaica Stock Exchange www.jamstockex.com/investor-centre/jse-brokers/

Learn what you can about them by using the link above or do a search for each company and go to its website to learn about it. If you know individuals who have used their services, you could speak to them.

Decide which stockbroker you wish to have a relationship with, and make an appointment to visit the office. To open an account, you will need to complete a client agreement form and present identification, a reference letter, and other documents. The client agreement form will capture useful personal information on you. Some of that information will help the stockbroker to determine your risk profile, which will form the basis for making recommendations that are suitable for you.

It would be to your advantage if you know something about how the stock market works and about any company you may have an interest in investing in, so it would be prudent to learn at least basic financial analysis, which is primarily concerned with the analysis of financial statements.

For now, you need a stock-broker to guide you in choosing an interest-earning security that has a short-term to maturity. A treasury bill is one instrument that your broker may recommend, but although the rates are better than the rates the banks offer, you should not expect them to be stratospheric.

While you wait for the right time to use your refund to expand your beekeeping business, your main objective should be to preserve your capital. Ordinary stock cannot guarantee that.

- Oran A. Hall, principal author of 'The Handbook of Personal Financial Planning', offers personal financial planning advice and counsel. finviser.jm@gmail.com