You can buy stocks too
Own a piece of a company and make some money while you're at it.
A stock or share (measured in units) represents ownership in an entity.
"If a company is made of one million shares and you have at least 100 units of that shareholding, you most definitely own a piece of that company," said Deborah Vieira, wealth advisor at Stocks and Securities Limited (SSL).
What's more, it's a good long- term investment, which is historically known to beat returns on fixed income instruments over time, said Tania Waldron- Gooden, vice president, research and special projects at Mayberry Investments.
An individual can purchase more than one stock, from a variety of entities and can look forward to getting dividends, payments during the course of the year. Payouts are made via a dividend cheque.
Dividends are paid from the profit of the company, some pay quarterly, semi-annually or annually. There are firms that have a specific dividend policy where you get a certain fixed amount every quarter.
For those who already have good stocks, it makes good investment sense to buy additional units, that way the dividend cheque will eventually increase.
But for those who haven't yet been on board, dividends are still a source of income, Vieira said.
It should be noted that stocks aren't short-term investments; emergency funds should never be used to buy stocks, Vieira said.
The minimum tradable number of stock on the Jamaica Stock Exchange is 100 units.
Think about it, that extra $5,000 could become an investment. It could get you a stock valued at $25 per share and 127 units or purchase shares in an initial public offering paying an application fee of $110.
Importantly, once you decide to invest in stocks, you need to do research before buying a piece of a company.
"Don't buy a stock you don't know anything about- ask questions," said Vieira. " That's where the advisor comes in."
Look for stocks that are easily tradable, there are some that trade every day, some are illiquid, which means that there may be willing buyers but no sellers.
Other considerations are the dividend yield on a particular stock.
Putting your money on a stock may be more attractive than a repurchase agreement (repo) or a fixed deposit, Vieira said.
Dividends are taxed at five per cent versus interest income from repos that will be taxed at 25 per cent.
Buy into companies that you are familiar with and can relate to.
Don't forget, the Jamaica Stock Exchange consists of the main market and a junior market.
Diversification is ideal.
While you can purchase a stock from a company you admire, mix the portfolio," Vieira said, "so as to not have too many of one type of stocks."
That way you diversify your risk levels.
One has to determine whether an investor has a low, medium or high appetite for risk, Waldron-Gooden said.
Equities, as stocks are also called, are usually for medium to high -risk individuals.
But, there's risk in every investment.
"Trading in stocks will be of a higher risk than having a savings account," she said. "But for the long term the returns from being in the Stock Market outstrips that of a savings account."
On the other hand, trading in stocks isn't as high risk as trading in currency.
"Once the risk appetite is determined, then stocks are chosen based on the financial viability of the company and the manner in which the stock trades on the market over time," she said.
Weather and the economy can affect certain stocks.
The SSL wealth advisor suggests that the investor examines companies that are constantly innovating and are always diversifying their product lines, or increasing their revenue and profits.
Once the decision is made, seeing an advisor at a broking company is the next move. There, an account is opened and purchased stocks are posted in a portfolio.