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August 28th, 2013

HOW TO BUILD AN INVESTMENT PORTFOLIO

 

Once you start earning a monthly income and begin to have dreams about what you want in life, from owning a new vehicle to purchasing a home or even travelling the globe, you have set goals that have a cost attached to them. Meeting those goals requires an investment portfolio that is right for you.

What exactly is an investment portfolio? It is a collection of assets aimed at achieving one or more investment objectives.  These may include making immediate profits, earning regular income, growing as well as preserving the initial principal invested. The investment instruments available to you include mutual funds, money market instruments, bonds, stocks and alternative assets such as land and rental property.

The first step in building an investment portfolio is determining your specific goals and objectives. Over the course of your life, goals will change according to life events. For instance, at the start of one’s career you would likely have a keen interest in wealth accumulation and so would be focused on building up assets.  At the latter stages of life the main preoccupation may be safeguarding your income to pay yourself on retirement or ensuring that your loved ones are taken care of.

Goal determination is also tied into specific time horizons (short, medium and long term) which will assist in distinguishing periods of significance to invest towards. Work towards a monthly budget to start accumulating your savings which puts you on the road of growing capital for the creation of an investment portfolio. 

Of equal importance is assessing your risk tolerance. This will dictate the specific asset classes and proportions in which you invest.  Asset allocation is critical and should ideally be balanced depending on what stage you are in your life. For example, the younger you are the larger your appetite for risk as there is more time to recover from possible shortfall in more volatile investments. The rule of thumb is at age twenty, your portfolio should comprise 20% income and 80% equity, at age fifty it can split 50-50 and at age seventy, 30% of your investment should be in equity and 70% in income.

Setting your asset allocation takes you a step further in the direction toward achieving your goals through diversifying your portfolio. However, interim reviews should always be conducted to ensure your investment portfolio remains aligned to your investment objectives. This is known as portfolio rebalancing.

At the Unit Trust, our goal is to make it convenient for the investor to build his own investment portfolio through ownership of various mutual funds designed with specific risk levels in mind. Each of our funds is distinguishable by its asset allocation. For example, the portfolio composition of the Growth and Income Fund emphasizes equity instruments while still maintaining a bond component, which allows for more balanced growth through capital appreciation and the production of income. Investors with a medium to long term investment horizon and moderate risk tolerance may find this fund suitable to their needs.

The Unit Trust Corporation offers a diverse range of products to match your investment goals. For example, if you are interested in regular income that offers safety of and ready access to your principal, you may wish to consider the TT$ Income Fund.  If you want a similar product denominated in US dollars, then the US$ Income Fund might be the right fit for you. 

For goals that safeguard your children by giving them a head-start in life you can opt to invest in the Children’s Investment Starter Plan (CISP) or the Student Investment Protection Plan (SIPP). CISP offers the opportunity for investment that grows as your child grows while SIPP provides the added security of an insurance benefit that covers your child against medical and dental accidents anywhere in the world.

For a longer term investment horizon that includes retirement, the Unit Trust offers three different products for your specific needs. The Individual Retirement Unit Account (IRUA) is a tax free plan that allows flexible encashment options on retirement. Pension Plus is a deferred annuity plan that is eligible for tax relief and offers the added benefit of insurance coverage. Last but not least is the Universal Retirement Fund (URF) which offers portability and convenience.

Should you wish to diversify your investment portfolio beyond the shores of Trinidad and Tobago, the Unit Trust offers the International Suite of Funds (ISOF). These Funds are all US dollar denominated and target the investor with a greater risk tolerance. Four of these funds (North American, Latin American, European, Asia Pacific) offer the investor the opportunity to emphasize equity investments from advanced and emerging markets around the globe.  The Global Bond Fund offers the investor the opportunity to participate in fixed income investments across the world while the Energy Fund provides investors with a convenient vehicle to access the global energy sector.

We understand that determining the right investment portfolio for you is not a simple, overnight matter. We therefore recommend that you seek financial advice when considering your financial circumstances and that you take a gradual, consistent approach to building an investment portfolio that is right for you.  Please feel free to consult the Unit Trust as you seek to build that investment portfolio.