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February 4th, 2014



I have friends who are always telling me that I should consider investing. Is this something I should consider going forward in 2014?

Making a decision to invest can seem daunting for a newcomer to the world of finance. However, saving alone would not enable you to gain financial independence. Yes, there is a marked difference between saving and investing and understanding the distinction will help you to better prepare for your financial future.

Saving is basically deferred spending. It is a decision to not consume resources now so as to enable you to consume those same resources in the future. There is usually no expectation of significant return for saving as the understanding is that the resources are being kept safe so that they are almost certain to be available in the future. Thus, an account that is highly liquid with very low risk and relatively low expected return would be considered a savings vehicle. Saving is usually associated with attaining short term financial goals such as going on your annual family vacation. It may also be associated with setting aside resources for unforeseen circumstances, for instance, a “rainy day” fund. 

Investment on the other hand is about making your money work for you, usually through the purchase of a monetary or physical asset. This has the potential to generate an earnings stream or growth in capital value over the medium to long term.  Thus, the premise of investing is the opportunity for additional income or increased value that ultimately creates wealth which goes a long way towards achieving financial security.

A caveat with any investment is the inherent risk due to fluctuating rates or values that can lead to worse than expected returns. However, securing long term financial goals like retirement will be challenging if investments are not undertaken at the outset. On the other hand, savings vehicles are not geared toward generating the value necessary to achieve critical long term financial goals as they focus on value protection as opposed to value enhancement.  Savings vehicles also struggle to provide a real rate of return over the long term as they do not counteract the effects of inflation on the purchasing power of your money.  

Prudent investing is a systematic process that gets an easy kick-start through goal-setting with corresponding timelines to achieving them. Thus, your investment decisions will vary according to these goals and how you allocate them.

Now that you are strongly considering investing and are ready to get your feet wet, the Unit Trust Corporation provides easy entry for anyone, regardless of income level or risk tolerance, through investments in mutual funds.  Mutual funds pool money from investors to invest in a variety of instruments – stocks, bonds, money market and fixed income securities and assets, to construct a diversified portfolio. It gives every investor an equal slice of the pie as each unit in a fund represents a proportionate ownership of each of these instruments.

If your focus is on achieving short term goals (6 months to 1 year) with a desire to preserve capital and receive current income, the TT$ or US$ Income Fund may be an appropriate investment for you. It offers the benefit of 24 hour access to your money anywhere in the world through the VISA Electron Card, no account fees and costs a mere $100 to open an account.

If you are seeking a fund to address your medium term (2 to over 5 years) needs, with the potential for capital growth, dividend income and combating inflation, then an investment in the Growth and Income Fund may be suitable for you.  It offers the unique advantage of a price guarantee that ensures that you will not withdraw at a price lower than the price you paid on the date of purchase, as long as you remain continuously invested for at least three years. Consequently, there is no loss to you while you still stand to benefit from gains on your initial investment if the price increases.

To ensure your financial security at retirement, the UTC offers three different investment vehicles: the Universal Retirement Fund, which is specifically geared to growth and satisfies those with a more aggressive risk tolerance; the Pensions Plus, a deferred annuity plan which is tax deductible up to $30,000 a year and has an additional life insurance coverage benefit; and the Individual Retirement Unit Account with flexible options at retirement without being taxed.

You can also give your children a head start to financial independence, through investments in the Children Investment Starter Plan or the Student Investment and Protection Plan. The UTC also offers the North American Fund for those who want to invest beyond the shores of Trinidad and Tobago.

Do not be afraid to step into the investment world as we at the Unit Trust Corporation stand ready to help you navigate this voyage. Start 2014 with a bang towards building a nest egg for your future.