Investing in Challenging Times

Tips for investing in challenging economic times

Good Advice for Hard Times

An economic downturn usually makes people more aware of the importance of saving and spending their money wisely.  Here are a few tips you can adopt to help you manage your money wisely during such periods.

 Pay off your debt

The repayment of debt is the best investment you can ever make. A downturn in the economy means fewer job opportunities, wage cuts, and rising unemployment. In order to protect yourself, it is wise to repair your personal balance sheet. Reduce your spending and use the money you save to reduce personal debt first (credit cards, overdrafts, loans), then your mortgage. Build a cash cushion to help meet unexpected bills or to cover expenditure if your income falls.

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Are you too young to plan for your retirement?

Many persons who are under 40 years old have not yet begun planning for retirement. However, is there such a thing as “too young to plan for retirement?” Does “the early bird catch the worm? The earlier you start to plan for retirement the more prepared and at ease you will ultimately be. Here are some helpful tips to help you grow your financial wealth and ensure that your retirement years will be well cushioned. Continue reading

How Do I Build An Investment Portfolio?

You should establish your investment strategy by deciding on the mix of investment products (assets) that you seek to purchase. The saying Don’t put your eggs in one basket” is very relevant to investing success. In building your investment portfolio you can spread your money across different classes of investments, including:

1. Cash and Cash Equivalents 

  • High liquidity,easy to get your money when you need it
  • Provide lower return, but with almost no risk

Examples: Savings accounts, money market funds, and treasury bills. 

2. Fixed Income Investments 

  • Offer a fixed rate of return that doesn’t change
  • Provide a steady flow of income
  • Can lower your investment risk

Examples: Bonds, bond mutual funds

3. Equity Investments 

  • Buy a share of ownership in a company
  • Are riskier than fixed income investments
  • Offer the potential to make far more than a fixed income investment or cash equivalent

Future value is uncertain, and will be affected by:

  1. How well the company is doing now and its future growth
  2. News events specific to the company
  3. Economic trends

Examples: You can buy shares of an individual company’s stock, or buy units of a mutual fund that invests in the stocks of many companies.

To build your investment portfolio, choose from one or more of these asset classes to get the right balance of risk and return for you.

Remember, a well thought out asset mix is the key to your investment success. In most cases, when you mix your classes of investments, you reduce the risks associated with investing. 

What Is Insider Trading?

Part IX of the Securities Industry Act, 1995 (“the Act”) addresses “Dealing by Persons Connected with Issuers.” This practice is commonly referred to as Insider Trading.

Insider trading is the purchasing or selling of a security by persons who are connected to the issuer of the security and who have knowledge of price sensitive information by virtue of said connection.  

Section 120 (1) of the Act defines price sensitive information as “specific unpublished information which, if generally known, might reasonably be expected to affect materially the price or value of (a security.)” Section 120 (2) goes on to provide the circumstances under which a person is considered to be connected with an issuer of securities. Section 121 lists specific persons and the situations under which they are prohibited from trading and exceptions can be found under Section 124.

There are many forms of insider trading and it is important to note that you do not have to make a trade yourself to be held liable for insider trading. Once you share price sensitive information which is not publicly available with someone who makes a trade based on the information you have provided, (commonly referred to as Tipping), both you and the person who actually make the trade, may be found guilty of insider trading. The connected party is referred to as “tipper” and the recipient of the information is referred to as the “tippee.”

Additionally insider trading does not only apply to people who work directly for a company. In a nutshell, once an individual has access to material, non-public information, he/she cannot make a trade based on that information. This means that nearly everybody, including brokers, family, friends, and employees, can be considered an insider. A clear examples is  the CEO of a company telling his daughter to sell her shares of his company’s stock knowing that the imminent release of certain information will cause the value of the stock to drop. In such a case, although the CEO himself did not actually make a trade, he might nevertheless be  found guilty of insider trading. Furthermore, although not an employee of the company, his daughter might also be found guilty of insider trading.

The essence of timely disclosure is one of equal opportunity since investors must be allowed to be privy to all price sensitive information in order to reach an informed investment decision. In light of the potential liability and adverse publicity that may accompany insider trading allegations, it is imperative that companies establish, enforce and constantly review their policies and procedures to prevent and detect insider trading.

It is evident that insider trading undermines investor confidence in so far as it affects the fairness and integrity of the securities markets. The Commission has issued “Guidelines of the disclosure of Price Sensitive Information” as well as “Policy Guidelines for Listed Companies’ handling of Price Sensitive Information.”

These documents are available on the TTSEC website at http://www.ttsec.org.tt