In a recent Sterling Asset Management panel discussion on investing and insurance, a question was raised that seems to be asked quite often: “Investing is only for the rich: how does someone start investing even though they may not have enough money?”

As with any goal in life, it is important to plan the steps necessary for achieving the goal. The first step for many will be to start by saving. Saving small amounts can accumulate over time and is the genesis to becoming an investor. Depending on your own personal situation, saving may begin from receiving cash gifts received as a young person or it may begin when you have a job and begin collecting a salary. Whatever the situation, when there is a source of income, begin putting aside a portion of the income as savings. Allow the savings to accumulate to allow for the investing phase to commence.

The second step is to look at the types of investments which are available. Investments have different characteristics that may make it easier or harder to partake as an individual investor. Find out what the minimum requirements are to determine the best fit for you. It is important to know the minimum amount that can be invested, the risk level associated with the investment and all the terms of the investment (ease of liquidation, fees, penalties, etc). Also, as you now transition into investing, save and invest on a continual basis to grow your investment portfolio and net worth. Both are needed to achieve your financial goals.

For the new investor, an easy entry point is buying stocks on the local stock market. This will allow you to invest a small amount initially and you can then add to the investment periodically. Usually, the investor can buy stocks using a few thousand Jamaican dollars to start. You can then add to your investment regularly by buying more stocks in the same companies or you can diversify into the stocks of other companies. Over time, appreciation in the stock prices and the effect of continually adding more to your investment portfolio will allow you to see much better returns than saving alone.

Mutual funds and unit trusts also allow investors to make a relatively small initial investment and to add funds in small increments when convenient. Mutual funds and unit trusts are pooled investments where a group of people will place funds with an investment bank/broker and allow a professional portfolio manager to invest for the best returns. They also allow the individual investor exposure to investments which would normally require a large initial principal outlay if they were to purchase on their own. Like the strategy for buying stocks, the effects of adding to your investment periodically will result in better returns than saving alone.

As you grow your portfolio and explore other investment options, you can then decide if and/or when you should transition into other asset classes. Plan to keep adding to your investments to enjoy the benefits of growth and compounding.

Dwayne Neil, MBA, is the AVP, personal financial Planning 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.