OVER the last few years, there has been a plethora of bond offerings in Jamaica as the local stock market remains in decline.

Bonds can provide a predictable income in retirement and so are a necessary component of retirees’ portfolios and cushion any sharp declines in the stock market. I have, however, observed investors chasing high short-term returns which proved detrimental as they opted for junk bonds which are quite risky.

In an interesting interview with one of my retired clients last week, he said that his investments were in low-risk instruments, mainly bonds, throughout his working life. As a conservative investor, this client lives a comfortable and modest lifestyle. We discussed the importance of retaining stocks in his investment portfolio to retain value for the future as bonds also suffer losses and returns over the long term are unlikely to beat inflation. Stocks have proven to beat inflation over the long term and provide much higher returns on investments than bonds. He also understood the benefits of investing in Jamaican dollars and hard currency, mainly US dollar instruments.

A significant benefit of investing in stocks is the accumulation of assets that can be sold in the future to provide needs and wants that may become necessary. Stocks become less risky in the long term and that’s the reason accumulating stocks for decades is imperative in wealth creation. Stocks have significant growth potential. Bonds on the other hand will not outperform stocks in the long term.

I have seen retirees who were risk-averse and are now in their 80s and living with regret that stocks were not included in their portfolio as bonds have failed to keep pace with inflation after 20 years or more.

Major surgeries, ongoing caregiving services, and expensive home repairs can quickly wipe out your investment portfolio, therefore the right mix of investments is important for all investors.

The Bank of Jamaica increased its based policy rate in November 2022 from 6.50 per cent to 7 per cent per annum, as a measure to curtail rising inflation, as some investors departed the stock market for the lure of higher interest rates on short-term instruments.

Last week, however, the central bank reported a reduction to its base rate from 7 per cent per annum to 6.5 per cent per annum as it managed to meet its inflation target range of 4 – 6 per cent. This target range aims to best support Jamaica’s long-term growth and reduction in public debt. The annual inflation rate stood at 5.1 per cent in July 2024.

Managing director of the Jamaica Stock Exchange Marlene Street Forrest is optimistic that as interest rates decline there will be improvement in the performance of the local stock market, and is in fact anticipating a complete market recovery by 2025.

The current market conditions present a lifetime opportunity for investors to invest long-term in the stock market to achieve their financial goals. I encourage existing investors in the local stock market to stay the course and keep adding to their investment portfolios by purchasing shares at cheap prices and being ready for higher returns which will compensate for past losses.

Some pre-retirees as well as retirees have suffered losses in their investment and pension funds over the past four years and anxiously await growth to return to their investment portfolios.

Renowned American financial advisor and author Suze Orman said she made losses in the stock market, but she remained unperturbed. She said: “I buy stock and hope it goes further down and down so I can accumulate more.” The stock market always recovers and in the words of one of the world’s most successful investors, Warren Buffet, “The stock market is a device for transferring money from the impatient to the patient.”

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com