Financial experts tout US$ bonds as safer and better investment during COVID-19

Financial experts tout US$ bonds as safer and better investment during COVID-19

BY KELLARAY MILES
Business reporter
milesk@jamaicaobserver.com

Friday, October 16, 2020

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Amid the global scare of markets collapsing due to significant fallout from the novel coronavirus pandemic, some financial advisors have cited US dollar (USD) bond investments as better avenues for preserving wealth during these unprecedented times.

Speaking on Monday (October 12) in a Sterling Asset Management webinar aimed at addressing frequently asked questions (FAQs), Eugene Stanley, vice-president in charge of fixed income and foreign exchange at the financial advisory firm, said that with the current levels of low interest rate and inflation along with the measures in place, global fixed income securities are better supported, which will in turn enable bonds to continue in performing well despite the effects of the pandemic.

“You can just simply invest in United States dollar (USD) assets, preferably bonds, which will preserve your wealth overtime and also allow you to grow your wealth. Even with low interest rates, you can get better returns on USD investments now than you currently do on Jamaican dollar (JMD) ones. It therefore [presents] a win- win situation staying invested in USD,” he said.

Bonds are medium- to long-term investments that pay interest income at regular intervals, allowing investors the opportunity to generate steady and predictable streams of income from savings.

Stanley said that to be invested in Jamaica dollar (JMD), this currently requires a minimum of 10 per cent on the investment which in this environment presents, “a very difficult task to achieve”, making it hard for investors to stay ahead of the game.

He also said that while there was an expectation for the trend of a devaluating JMD to continue into next year, the nature of USD bond portfolios, having been designed to retain the prospect for capital appreciation, will also help to protect investors from high inflation and devaluation.

BONDS VERSUS REAL ESTATE

Toni-Ann Neita Elliot, assistant vice-president of personal financial planning at Sterling, also recommend USD bond investment as a viable option for persons who may want to invest cash derived from the liquidation of a real estate property.

“Those persons would want to put the money in something that will actually give them income and I would recommend that they invest that money in USD bonds. The reason is because bonds work in the same way as real estate—in that they offer steady predictable income in the form of interest instead of rent but without hassle,” she stated.

Neita Elliot said that with bonds one could just buy and enjoy the interest and that's about it, but with real estate there will be the hassle of dealing with tenant complaints, repairs, along with the ongoing expenses such as property tax, insurance and the other things associated with maintaining a property.

“With a bond you avoid all of that and on top of that bonds also offer certain advantages over real estate— one such advantage is that if you need emergency cash you can actually sell the bonds very quickly and within two to three days have the cash in hand. Another advantage that bonds offer over real estate is the fact that persons can secure consistent income for a longer period of time in buying long-dated bond.

“You could buy a 10-year bond which allows you to secure income for a 10-year period, whereas with a property it's unlikely to find a tenant that will commit to a very long-term lease, which could result in periods of no tenant and the property just sits there without earning income which isn't ideal,” she further explained, noting also that bonds in most cases could offer higher returns than real estate.


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