This page contains a Flash digital edition of a book.
Investing Today: A Marathon Not A Sprint


including Grenada, Jamaica, Argentina, Russia and now Greece. In these matters, countries can often run deficits and high debt levels for much longer than one would expect but when the markets turn on you and you have no option but to seek assistance from the International Monetary Fund (IMF), the


corrections and adjustments often


happen much faster and are more severe than one expects.


“Nowhere to hide” is the new buzz phrase in the investing world today – what do I do with my money now? Where is safe that I will not lose my money but still earn a decent return? These are questions we now get all the time.


In Barbados, in the years since independence, many of the things that we have taken for granted, we now have to question. There are four main asset classes on which the majority of investors typically focus their portfolios – real estate, equities, government bonds, and savings accounts and deposits.


Real Estate Until now, real estate in Barbados has never gone down in value – there were periods where it may have just held but it has never gone down. Not so anymore, in recent years most of the assets in our Fortress Caribbean Property Fund have had decreased appraisals in prices by our independent valuer Terra Caribbean. If we were forced to sell some of these same properties right now, the declines would probably be even greater. With the recession continuing and delinquency in the banking sector now in the double digits, forced sales of properties by banks could cause property prices to fall even further.


For buyers with a long-term horizon, this is great news.


For sellers and those looking for quick


turns, the return prospects, especially after the taxes and transactions costs are deducted, are not very exciting.


Equities


The past three years have produced some of the most volatile stock markets in post-war history. The high to low points in the market for the period 2008/2009 was close to 50 percent down – investors saw their equity portfolios lose almost half of their value in less than a year. Between March 9th, 2009 and April 2011 – markets were


up just over 100 percent in many cases – almost back to the pre-crisis levels. Between April and October 2011, the US market lost 20 percent of its value before recovering 17 percent by the end of October. These swings are not an individual penny stock but the entire index of 500 of the largest companies in the US.


These volatile swings are very tough to handle for the best professional money managers – how then does the small retail investor cope with this rollercoaster? Bottom line, no one knows what will happen next month and there is nowhere to hide. Investors must know that solid companies with good balance sheets will survive and over the long term, the best strategy is to remain invested and/or continue to add to your portfolio – but especially when markets are down with a resilience to stay the trip and focus on the LONG TERM. It is a marathon, not a sprint and over the long run, equities have always outperformed bonds and other asset classes.


Government Bonds Government bonds were always considered to be rock-solid, securities on which you could not lose as they had the full backing of the government which theoretically can raise taxes and rollover its debts. In Barbados this was especially so, where ten years ago, we were an A-rated country with low debt-to-GDP ratios, well managed by fiscally responsible governments in handling their budgets.


Today, Barbados is the third most highly indebted country in the region with a debt-to-GDP of over 100 percent, running very high annual fiscal deficits, its debt rating is now just one notch above junk status and the government has so far shown little action to get its fiscal house in order.


Investors will have seen the dramatic losses faced from recent government defaults and restructurings


The medium term scenarios for this asset class in Barbados are quite uncertain given the credit risk (i.e. risk of re-pricing or restructuring). Secondly, interest rates are at record lows and if rates rise, the prices of bonds with lower coupons will fall. Finally, there is inflation risk, the 7.75 percent return on the current 2031 bonds looks enticing but imagine how little that principal will buy 20 years from now, with inflation currently running above 6 percent.


Savings Accounts & Deposits For those still reading this article, you are thinking well I am just going to sit in cash and wait for the economy to improve and the global financial and economic crisis to be over. Well there is bad news here as well. Interest rates are at record lows and are in fact negative - the rate of inflation is exceeding the rates that can be earned from deposits in the banks.


Looking back over the past seven years in Barbados, inflation has compounded by over 50 percent which means that if you kept your money under the mattress it is now worth 50 percent less than it was at the beginning of 2005. If you left it the bank earning interest and did not touch it – it would have increased in value by 30 percent which means that your money would still have lost 20 percent of its purchasing power over that short period. Leaving money in the bank is absolutely not an option unless for extremely short periods of time.


Retirement & Living Longer Life expectancy continues to increase which is wonderful as this means that we are all happy to be living longer, the problem is we will now need more money in our retirement years and not less. The costs of medical care are going up all the time at rates faster than the average inflation rates. Many governments all over the world are fighting the demographic changes and are already cash strapped and hence are being forced to renege on the pension promises of years ago by extending retirement ages and reducing benefits.


As the saying goes, the pensions time bomb is ticking and every living individual, everywhere is a part of it, every year you are getting older and closer to retirement with less time to fund those


113


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124