Business

Money thieves — who stole my money?

The Sterling Report

By Yanique Leiba-Ebanks

Sunday, May 20, 2018

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Ok you got me, I was just trying to get your attention. It really isn't a question of who, but what took my money. We refer to counting our money, but the real measure of money is what it can buy, aka purchasing power.

You may find that you have more money, but less of an ability to purchase goods. Therefore, in this article, I will examine the “thieves” that take away our money.

The very first one is inflation.

This is a serious concern for people who have been investing in Jamaican dollars over the long term. In Jamaica, the inflation rate has gone down considerably and is not currently a huge concern. However, in 2007 and 2008 the inflation rate exceeded 16 per cent which, when compared to today's levels, seems very high, yet, this was nothing compared to 1992 when the rate exceeded 77 per cent.

What this really means is that people who have been retired for many years would have been severely impoverished during periods of high inflation.

Real estate and stocks are the assets touted in the textbooks as being the best hedge for inflation.

The second thief is devaluation.

This is another funny one. Last year the Jamaican dollar appreciated, however, this year it has been up and down. A quick look will show that recently the pace of devaluation has slowed, but the long-term rate is pretty scary. In 1990, the average exchange rate went from 7.24 to 43.39 for 1 US dollar, and by 2010 it doubled to 87.33. Currently it trades within a range of 125 to a little over 128.

Any devaluation is exacerbated by the loss of purchasing power over the years in the United States of America. Back in the day, a short trip to Miami with US$1,000 would take you back with a full suitcase of goodies. Now, the same amount is likely to leave you with lots of space! US dollar- denominated investments, like bonds, are good options if this is a concern.

Amnesia would be the third thief.

I remember one year, when I checked my bank account and compared my earnings against the balance remaining, and I truly could not recall what I had spent my money on. It was such a frightening moment for me that, ever since, I track every penny.

Tracking expenses is a useful tool when you are trying to cut expenditure, since you can see at a glance where the bulk of your money is going.

There are two kinds of people: those who go for safety and only invest in predictable instruments and those who are very impatient.

Conservative investors give up potential upside return for lower risk and impatient investors jump head first into investments, ie they don't want to keep any money in cash.

The disadvantage with moving too quickly is that you may tie up your money and, shortly after, a better opportunity comes along. This is the reason why, when you are putting together your portfolio, you need to have cash — not just for emergencies but for opportunities!

Lastly, time can be your friend or your enemy.

Spending your money on assets, ie things that will give money back to you, like stocks, bonds, real estate, will normally pay off in the long run. However, spending on things like cars, clothes, and other consumer items ensure that your money is truly “stolen”, never to return.

Be vigilant of the money thieves!

Yanique Leiba-Ebanks, CFA, FRM is the AVP, pensions & portfolio investments at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm

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